Bitcoin’s recent price fluctuations have captured widespread attention, but the decline of corporate BTC holder Strategy (MSTR) has been ongoing for over three months.
The Current State of Strategy’s Stock
As of Wednesday, Strategy’s shares are trading around the $250 mark, reflecting a significant drop of approximately 55% from its peak of $543 on November 21. Investors who have engaged with leveraged MSTR products have faced even steeper losses. For instance, the Defiance Daily Target 2x Long MSTR ETF (MSTX) has nosedived by 90%, while the T-REX ETF (MSTU) has seen an 85% decline.
Despite these setbacks in stock performance, Strategy’s Bitcoin acquisitions have remained profitable. Since starting its purchases in August 2020, the company has achieved a 32% gain on its holdings, with an average cost basis of $66,300 per Bitcoin. At the current Bitcoin price of approximately $87,000, Strategy has an unrealized profit of $10.65 billion.
Understanding the Liquidation Concerns
One of the pressing questions surrounding Strategy is the potential for forced Bitcoin sales due to its convertible debt obligations. A closer examination reveals that all of the company’s holdings of 499,096 BTC are unencumbered, meaning they have not been used as collateral for any loans. Notably, a previous convertible note backed by Bitcoin with Silvergate Bank has been fully repaid.
According to insights from Bitcoin Overflow on social media, Strategy currently holds $8.2 billion in total outstanding debt, underpinned by its 499,096 BTC, which are now valued at approximately $43.4 billion.
Key Takeaway: Bitcoin’s Value vs. Debt Levels
The critical takeaway is that as long as the market value of Strategy’s Bitcoin holdings surpasses its debt levels, there is no immediate need for the company to liquidate any of its BTC assets. For context, Bitcoin’s price would need to plummet to about $16,500—an 80% decrease from current levels—before the situation would necessitate forced sales.
Examining Convertible Bonds and Future Scenarios
Diving deeper into Strategy’s financial structure, two of the six outstanding convertible bonds—the 2029 and 2030 issues—are currently trading below their original offering prices, representing a total of $5 billion out of the $8.2 billion debt. Fortunately, these debts do not mature until 2029, providing ample time for potential market recovery.
In a hypothetical scenario where Bitcoin’s value drops below the debt level as these convertible bonds approach maturity, and MSTR’s stock price is also low, Strategy may choose to sell Bitcoin to repay the bonds in cash rather than converting them into equity. This approach could help the company avoid significant dilution of its stock.
In summary, while Strategy’s stock may be struggling, its Bitcoin holdings remain a valuable asset. The interplay between its debt and Bitcoin’s market performance will be crucial in determining the company’s financial strategy moving forward.
