MicroStrategy's Bitcoin Bet: A Double-Digit Stock Plunge Raises Liquidation Fears

MicroStrategy's stock, MSTR, has taken a significant hit, falling by double digits following a sharp decline in Bitcoin's (BTC) price. This has sparked speculation about whether the company could be forced to liquidate its Bitcoin holdings. The Kobeissi Letter weighed in on the matter, suggesting that while such a move remains highly unlikely, it's not entirely off the table.

Over the past 24 hours, MSTR has dipped by 11%, closing at $250, marking a 55% decline from its all-time high in November 2024. Amid this dip, The Kobeissi Letter delved into the prospects of a forced liquidation of the company's Bitcoin holdings. The analysis noted that while it's not impossible, it's highly unlikely, and would require a "mayday" situation to occur.

The company's business model relies on raising capital, rather than selling Bitcoin, to fund its cryptocurrency purchases. By issuing 0% convertible notes and selling new shares at a premium, MicroStrategy has managed to finance its Bitcoin acquisitions without liquidating assets—even during market downturns. As of the latest data, the company holds approximately $43.4 billion in Bitcoin against $8.2 billion in debt, with a leverage ratio of around 19%.

Notably, most of this debt consists of convertible notes with conversion prices below the current share price and maturities extending to 2028 and beyond. This structure provides significant breathing room for the company. However, the company's ability to raise fresh capital is not entirely immune to challenges, and a significant rise in liabilities could strain its financial flexibility. While this doesn't automatically mean "forced liquidation," it could make such a scenario more likely under a "fundamental change."

Effectively, for liquidation to occur, there would first need to be a stockholder vote or a corporate bankruptcy. However, the scenario is deemed unlikely given Michael Saylor's 46.8% voting power, which effectively shields the company from such moves without his consent. Saylor has been a vocal supporter of Bitcoin, emphasizing its long-term growth, and the firm recently increased its holdings with a 20,356 BTC addition.

The real concern for MicroStrategy lies in the future, especially when the company's convertible bonds mature after 2027.