Source: The Kobeissi Letter (@KobeissiLetter), February 26, 2025
MicroStrategy (abbreviated as MSTR), a company known for its aggressive acquisition of Bitcoin, is under scrutiny due to its stock price plummeting over 55%. Against the backdrop of the current market downturn, the company holds approximately $43.7 billion worth of Bitcoin (about 499,000 BTC), sparking widespread discussion about the possibility of being forced to liquidate. The authoritative financial analysis firm The Kobeissi Letter provided a detailed post analyzing this situation, exploring the likelihood of liquidation and the key factors behind it.
MicroStrategy's Bitcoin Strategy: Resilience Through Storms
MicroStrategy's involvement in Bitcoin is not new. Over the years, the company has accumulated a significant amount of Bitcoin at an average cost of $66,350 per coin, enduring multiple bear market tests, including the drastic adjustment in 2022 when Bitcoin fell from $70,000 to $15,000. Despite this, MicroStrategy has never faced liquidation. Now that Bitcoin's price has dropped below its average purchase price, questions arise: Is this situation different?
Business Model: Leverage and Capital Cycle
The core of MicroStrategy's strategy lies in a cycle of borrowing and reinvestment. The company raises funds by issuing 0% interest convertible bonds to purchase Bitcoin, then issues new shares at a premium and reinvests the proceeds into more Bitcoin. Currently, MicroStrategy carries $8.2 billion in debt, while its Bitcoin assets are valued at $43.4 billion, resulting in a leverage ratio of about 19%. Most of this debt consists of convertible bonds, with conversion prices below the current stock price, and the majority of the debt maturing in 2028 or later. This structure buys the company time, but it hinges on its ongoing ability to raise capital.
Liquidation Risk: High Barriers to Challenge
Will MicroStrategy's Bitcoin be forced to sell? The Kobeissi Letter points out that "forced liquidation" could only be triggered in the event of a "fundamental change" in the company—such as liquidation, dissolution, or bankruptcy. This would require a shareholder vote or court intervention in bankruptcy proceedings. However, MicroStrategy co-founder and chairman Michael Saylor holds 46.8% of the voting rights, making it nearly impossible for any shareholder resolution to pass against his will. Saylor's control provides strong protection for the company.
Convertible bonds add another layer of complexity. If Bitcoin's price plummets over 50% and remains low after 2027, these bonds may mature below the conversion price, forcing the company to repay or refinance. Even so, liquidation is not inevitable unless creditors demand early redemption—an uncommon and extreme situation under the current debt terms.
Saylor's Position: Steadfast Optimism
Saylor recently responded to concerns about liquidation, claiming that even if Bitcoin drops to $1, MicroStrategy would not sell but would instead "buy all the Bitcoin." This bold statement, while inspiring, does not fully consider the potential impact on convertible bondholders. Nevertheless, The Kobeissi Letter believes that, based on the debt structure and multiple price variables, forced liquidation is "extremely unlikely" unless an extreme crisis occurs.
The Real Test: Investor Confidence
For MicroStrategy, a greater challenge than liquidation may be maintaining its capital-raising ability. If Bitcoin enters a prolonged bear market, investor interest in the company's stock and bonds may wane, disrupting its capital cycle. Since its rise to fame in 2024, MicroStrategy is facing such a significant low for the first time, and the market will closely watch whether investors will continue to buy in as Saylor suggests, during a "discount" on Bitcoin.
Outlook: A Prolonged Battle
MicroStrategy's fate is closely tied to Bitcoin's trajectory and market sentiment. With several years until debt maturity and Saylor firmly in control, the company is unlikely to face a liquidation crisis in the short term. However, if the cryptocurrency market remains depressed for an extended period, the limits of its unconventional strategy will be tested. As The Kobeissi Letter points out, the situation is still evolving and warrants real-time attention.
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