Is MSTR Facing Possible Bankruptcy Following Bitcoin’s Collapse?
- Microstrategy stock plummets as Bitcoin and crypto prices crash.
- MSTR stock fell 25% on Wednesday and 12% pre-market on Thursday.
- MSTR is basically a leveraged bitcoin game, and the CFO has set a target for bitcoin bears.
Shares of Microstrategy (MSTR) are under increasing selling pressure as the crypto world looks into the abyss. First of all, we have to point out that we have been here before. Bitcoin has seen similar meltdowns, and so far it’s still here. The fact remains that it is very volatile, and this volatility could be Microstrategy’s downfall. Bitcoin is currently trading at $27,600, having traded near $25,000 earlier on Thursday.
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Bitcoin is down 57% in the last six months and 40% since the start of the year. Again, this is terrible, but some pandemic stocks like Peloton, Netflix, Facebook, etc. are worse. Risky assets are all in trouble.
Microstrategy Stock News
What’s getting the most attention for MSTR stocks is the obsession with the $21,000 level that Bitcoin is approaching. There is only one bad day left to reach this level. Microstrategy CEO Michael Saylor is a big supporter of cryptocurrency. Even in the latest earnings call last week, he remained focused on Bitcoin deniers and haters.
“You also have another big development that deniers of bitcoin and digital assets in general are now being silenced by the administration of the United States,” Saylor said. “Bitcoin is better than gold. To call it digital gold is an understatement. It really is the hardest money in the history of the world.”
Unfortunate timing then, but the hindsight is still 20/20. Easy to take potshots now, I admit though.
Hmm, last time I checked, the US administration and government weren’t exactly rushing to adopt Bitcoin. So far, let me see, oh yeah, the haven of El Salvador has embraced it. A good model to follow for the US then! The executive order announced by the Biden administration aims to protect American consumers, the financial system and investors and to mitigate systemic risk. That means more regulation of crypto to me, not less or adopting it. The United States has also said that it will explore digital currencies, again meaning a digital dollar, without adopting bitcoin.
Either way, everyone has their own opinion on this, but the current price action and wild volatility of some other crypto names this week (Luna lost 99% this week) is unlikely to see governments suddenly decide that they are a good thing. It is likely to be the opposite. No government is going to relinquish control of its currency and its economy.
Now let’s move on to BTC’s relationship with Microstrategy. During the latest earnings call on May 3, Chief Financial Officer Phong Le said in response to a question: “As for where Bitcoin should fall, we took the loan at an LTV of 25%, the margin call happens at 50% LTV so essentially bitcoin needs to be halved or around $21,000 before we have a margin call that said before it hits 50% we could contribute more bitcoin to the guarantee package, so it will never get there.
This is where the $21,000 obsession with MSTR stock comes from. Right now, however, MSTR has more Bitcoin than it can pay for the loan, so the immediate margin call isn’t the issue. What is a problem is the domino effect. Microstrategy has never hidden the fact that it is a leveraged Bitcoin game. For now, he appears to have plenty of reserve assets on the hook if needed for additional collateral. During the same conference call, the CFO also said: “The remaining approximately 115,100 Bitcoins are held in the subsidiary MacroStrategy. Of the MacroStrategy of Bitcoins, approximately 19,500 Bitcoins are collateral as collateral for the Bitcoin-backed term loan and over 95,600 Bitcoins remain unpledged and unhindered.”
MSTR however has a lot of debt, both in terms of convertible notes and bonds. Some of them are under extreme selling pressure, with the convertible note offering maturing in 2027 and trading at just over 60 cents on the dollar and likely lower when the market opens. The 2025 bills closed at 73 cents on Wednesday. MSTR’s average purchase price for all of its Bitcoins is $30,700 according to its latest report. So he is now underwater on his investment in Bitcoin. Not alone there, Tesla (TSLA) too, we believe, who celebrated it with its purchase last year.
In total, according to Refinitiv, Microstrategy has $2.2 billion in outstanding loans, including $650 million due in 2025.
MicroStrategy Stock Forecast (MSTR)
The risk of the $21,000 margin call is not immediate bankruptcy as many predict. As we demonstrated in a normal market, Microstrategy has plenty of Bitcoin it can pledge or sell to meet this margin call. MSTR stock has a lot of debt, but most of it is unsecured, leaving Bitcoin holdings free to be used as more margin. The company has structured its leverage profile fairly well and has benefited from investor recklessness during the Fed’s print run of the past two years.
Basically, bondholders lent unsecured money to Microstrategy to buy Bitcoin. The question is how this will work out for bondholders, not Microstrategy’s solvency. With 2027 bonds likely to trade at nearly 50 cents on the dollar today, this indicates huge default risk.
Convertible bonds for 2027 are not convertible into common stock until after 2026, so bondholders are not free to convert and dump MSTR shares. They are stuck.
MSTR stock chart, daily
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