Analysis: MicroStrategy has taken on $2.4 billion in debt to buy Bitcoin

MicroStrategy (MSTR) has purchased over 129,000 bitcoins since making its first move to add the flagship cryptocurrency to its balance sheet in August 2020.

The company, co-founded by CEO Michael Saylor in 1989, first bought the cryptocurrency by converting $250 million of its cash holdings into 21,454 BTC. Since then, it has converted proceeds from the software business to Bitcoin, buying the dip to triple its holdings over the past two years.

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The Nasdaq-listed company’s total BTC haul is worth over $3.8 billion based on current price, down from nearly $6 billion in December 2021 following a volatile few months for the market.

MicroStrategy’s debt structure

According to CNBC’s Kate Rooney, the purchases have also come at a $2.4 billion debt.

“MicroStrategy can be a tough company to size up,” Rooney said on Monday. “It’s both a software firm and essentially a Bitcoin holding company and both of these businesses impact the balance sheet and the bottom line.”

Most of the BTC buys have come in the form of convertible notes, she noted, with investors getting company stock on maturity.

$1.7 billion of the debt is in the senior convertible notes, at an interest rate of between 0% and 0.75%. The firm has also taken on $500 million worth of debt in senior secured notes that offer a 6.1% interest rate.  The latest debt is a “first-of-its-kind” $205 million bitcoin-backed loan taken in April at an interest rate of roughly 4%.

MicroStrategy was left facing a potential margin call after the last purchase if BTC price fell below $21,000. However, despite weakness for the firm’s stock, Michael Saylor has previously said the company has “enough Bitcoin to put up as collateral” should it come to that.

Bitcoin is priced around $31,286 at the time of writing, up 4.3% in the past 24 hours and over 6% in the green over the past week. However, BTC/USD is down more than 13% in the past 30 days and remains more than 54% off its all-time high hit in November 2021.

The MSTR stock, on the other hand, was trading at $235.71 on Monday, up 7.6% in the past month. However, its down more than 57% year-to-date.