MicroStrategy, the business intelligence firm, is taking a huge gamble on Bitcoin, and it could backfire, according to BitMEX Research. Their strategy of constantly borrowing money to buy more Bitcoin is raising concerns.
A Debt-Fueled Bitcoin Strategy
MicroStrategy has amassed a massive Bitcoin hoard, largely financed through issuing bonds. They currently have $4.25 billion in outstanding bonds, with more paid off already. This makes them heavily reliant on Bitcoin’s price staying high.
The Risk of Liquidation
BitMEX points out that Bitcoin’s price is incredibly volatile. If the price crashes significantly – perhaps down to around $15,000 – and MicroStrategy can’t borrow more money, they might be forced to sell their Bitcoin to pay off their debts. This is a “forced liquidation,” and it could severely damage the company.
The “Infinite Money Glitch” and Shareholder Interests
However, BitMEX believes a forced liquidation is unlikely in the near term. The maturity dates of their bonds are spread out over several years. A more likely scenario, they argue, is that MicroStrategy will be pressured to sell Bitcoin if the company’s stock price falls below its net asset value (NAV). Currently, the stock trades at a premium to its NAV – a situation BitMEX calls the “infinite money glitch.” This means the stock price is higher than the value of its assets, incentivizing them to hold onto Bitcoin. But this situation won’t last forever. If the stock price drops, selling Bitcoin to repay bonds would become the most logical move for shareholders.
The Bottom Line
While a sudden collapse isn’t immediately expected, MicroStrategy’s heavy reliance on Bitcoin’s price remaining high is a significant risk. Their future depends on Bitcoin’s performance and the ongoing viability of their high-risk strategy.
