Bitcoin: is MicroStrategy in danger of liquidation?

While the founder and CEO of MicroStrategy, Michael Saylor, is convinced that the price of Bitcoin in the future may even reach $1 million, there are those who wonder if his company is taking risks during this bear market. 

Bitcoin: MicroStrategy cornered with loans

Indeed, some of the BTC they have bought have been financed by loans that must be repaid. Some wonder whether the company will have enough funds to repay these debts, and whether its long positions will be liquidated. 

Right now MicroStrategy has just under 130,000 BTC, purchased at an average price of about $30,000. Therefore his investment as a whole is currently at a loss. 

It originally purchased BTC simply using its own funds, and this could not have caused anything other than possible capital losses on its balance sheet. 

As Saylor himself points out, since MicroStrategy began buying Bitcoin in August 2020, its overall stock price has risen 73% to date, whereas, for example, Alphabet (formerly Google) has done only +51%, Apple +33%, and Amazon +27%. 

On August 11, 2020, @MicroStrategy embarked on its #Bitcoin Strategy, acquiring 21,454 bitcoins at an aggregate purchase price of $250 million.

Performance since that time: $MSTR is +73%, GOOG is +51%, AAPL is +33%, MSFT is +23%, AMZN is -27%, META is -37%, NFLX is -61%.

— Michael Saylor⚡️ (@saylor) July 16, 2022

Thus for now the situation seems under control, but it is worth noting that at some point, in order to finance further purchases, at prices often well above $30,000, they took out loans. 

To repay those loans they will either have to forcefully sell some of the BTC they have purchased, in the hope of making a profit with which to repay the debt, or generate enough cash flow with the company’s core businesses to be able to cope. Right now, their overall investment in BTC is at a loss. 

A while back, Saylor stated that the debt taken on by the company to purchase BTC was $205 million, for which $410 million in collateral was required. In total, there are more than 115,000 BTC that can be used by the company as collateral for this loan, so only if the price falls below $3,500 could the company fail to secure the loan. 

However, there is more than just the collateral issue, which seems to be under control. In fact, that $205 million will somehow have to be paid back within three years, and if MicroStrategy’s BTC investment continues to be at a loss, one has to wonder how they will find the money to pay it back. 

In theory, they have nearly three billion dollars in BTC to repay this loan as of today, but should they be forced to actually repay it with Bitcoin sold at a loss, the consequences for the company may not be good at all. 

The maturity of this loan will occur the year after next halving, so it is assumed that by that time MicroStrategy’s investment in Bitcoin may well be back in the positive. However, it is by no means a given that it will turn out exactly that way.