An investor’s note from private wealth management firm Bernstein has unpacked a potential scenario that would force MicroStrategy to sell some of its Bitcoin holdings.
The business intelligence firm has been converting most of its corporate treasury to Bitcoin (BTC) in a move led by CEO Michael Saylor over the past two years. The company holds over 150,000 BTC, valued at $4.5 billion, of which some tokens have been used as collateral for loans.
According to Bernstein’s note, which has grabbed headlines, MicroStrategy plans to continue raising debt into the future, which could lead to a potential scenario where it would have to liquidate its BTC holdings. This would require “extreme price corrections” coinciding with the company’s debt expiry in 2025.
The worst-case scenario would see the value of MicroStrategy’s BTC holdings fall below its debt obligations. This would lead to its corporate structure coming under pressure from ‘spring forward’ clauses.
“2028 due debt does have liquidity covenants which could spring forward the debt to 2025/26”, the report added.
MicroStrategy is somewhat of a trailblazer for the institutional adoption of Bitcoin. Saylor initiated the firm’s BTC acquisition strategy after announcing the company would convert its treasury to Bitcoin in 2020.
The company would go on a spree of Bitcoin investing, starting with a $250 million buy order for 21,454 BTC in August 2020. The company now holds over 152,000 BTC as of July 2023, valued at $4.5 billion at an average price of $29,600.
MicroStrategy also announced a $1.05 billion loan in February 2021 that matures in 2027 that it used to continue its Bitcoin acquisition strategy. This is part of the debt the company is carrying that could lead to a potential sell-off scenario which Bernstein has highlighted.
MicroStrategy’s Bitcoin holdings are significant for a single entity and exceed the 142,000 BTC owed to creditors of the infamous, defunct cryptocurrency exchange Mt. Gox.
As CCN previously explored, there has been similar speculation about the potential impact of the return of the 142,000 BTC to former Mt. Gox’s users and whether that amount of liquidity would drive Bitcoin’s value down.
Quantum Economics founder and seasoned cryptocurrency market analyst Mati Greenspan said that the value of Mt. Gox’s BTC is not even as significant as daily trading volumes:
“Daily on-chain volumes are at an average of $12 billion, and exchange volumes are reportedly in the neighborhood of $18 billion per day. So this is certainly something the market can absorb in a relatively short time frame.”
While the comments were aimed at Mt. Gox creditors BTC holdings, the fairly similar value provides a good measuring of what would transpire if MicroStrategy were to sell some BTC.