Could MicroStrategy Be Compelled to Liquidate Its $43 Billion Bitcoin Portfolio? Insights from Experts

MicroStrategy's stock (MSTR) has faced a notable downturn, decreasing sharply after Bitcoin (BTC) prices fell. This dip has led to speculation about whether the company might be forced to liquidate its Bitcoin holdings. However, experts from The Kobeissi Letter suggest that while this possibility exists, it remains highly unlikely under current circumstances.

MSTR's Decline in Context

In the last 24 hours, Bitcoin's value has declined by over 3%, resulting in an 11% drop in MicroStrategy's stock, which closed at around $250—off 55% from its peak in November 2024, according to Yahoo Finance.

The Kobeissi Letter examined the potential for a forced liquidation of MicroStrategy's assets. They commented,

“While a forced liquidation is not out of the question, it is highly unlikely. An extreme situation would need to occur for this to happen.”

Capital Strategies and Debt Management

The company's business model focuses on securing capital rather than liquidating Bitcoin to finance cryptocurrency acquisitions. By issuing 0% convertible notes and introducing new shares at favorable prices, MicroStrategy has sustainably added to its Bitcoin portfolio, even during unfavorable market conditions.

Presently, MicroStrategy boasts approximately $43.4 billion in Bitcoin holdings, countered by $8.2 billion in debts, giving a leverage ratio of about 19%. The majority of this debt consists of convertible notes, which have conversion prices set below the current stock price and mature beyond 2028, providing the company with significant flexibility.

Potential Challenges Ahead

Nevertheless, the firm’s ability to raise new capital is not without its challenges. Should their liabilities surge considerably beyond their assets, the company may face difficulties.

“A scenario where liabilities surpass assets could undermine their financial flexibility,”

While this may not lead directly to forced liquidation, it could put pressure on the company’s financial standing. A crucial point raised is that for liquidation to take place, a stockholder vote or a corporate bankruptcy would first be necessary. This remains improbable, given that Michael Saylor holds 46.8% of the voting power, effectively preventing such drastic actions without his agreement.

The Long Game

Saylor has consistently advocated for Bitcoin, believing in its long-term potential. Recently, the company has reinforced its commitment by acquiring an additional 20,356 BTC. However, concerns remain regarding future liabilities, especially as the maturity of convertible bonds approaches after 2027.

If Bitcoin’s value were to plummet by over 50% and stabilize at a lower level, MicroStrategy may find it challenging to either refinance or repay its debts, which could test investor confidence in the firm.

“Sustaining investor confidence will be vital for MSTR in light of market downturns,”

In summary, while the likelihood of forced liquidation in the near term appears minimal, the long-term implications of Bitcoin volatility and outstanding debt obligations present notable risks that could affect the company's future.