Strategy (formerly MicroStrategy) is the largest publicly traded investor in Bitcoin. It recently saw its shares fall more than 55%. The stock's plunge has left cryptocurrency players whispering whether Strategy will be forced to sell its Bitcoin to weather the crisis.
Strategy owns 499,096 BTC worth $44.3 billion. A cryptocurrency selloff could bring down an already weak market. We find out if Strategy could betray its ideals and start dumping bitcoins.
MicroStrategy Bitcoin Strategy
MicroStrategy's business model is built on using Bitcoin as its main asset. The company has been acquiring the cryptocurrency for several years. As a result, the average purchase price of each BTC was about $66,350. It is important to understand what will happen if the coin falls significantly below this mark.
Despite several bear markets, including Bitcoin falling from $70,000 to $15,000 in 2022, the company has not abandoned its strategy. This approach inspires optimism, but does not guarantee that MicroStrategy will continue to adhere to its chosen strategy in the future.
The core element of this model is the ability to raise capital through the issuance of zero-interest convertible notes, which are then used to buy even more bitcoin. The company currently has about $8.2 billion in debt and $44.3 billion in BTC reserves, giving Strategy a leverage ratio of 19%.
Possibility of forced liquidation
The debt structure is a deciding factor in whether a forced liquidation could occur. Most of MicroStrategy's debt is tied to convertible notes, which have a conversion price lower than the current share price, and most of these obligations are not due until 2028.
A forced liquidation could, in theory, only occur if there was a “fundamental change” within the company. Under the terms of the loan agreements, such a change could involve significant adjustments to MicroStrategy’s operations or structure. This would require shareholder approval or corporate bankruptcy, which would be extremely difficult to achieve.
A shareholder vote would be required to liquidate or dissolve the company. Given that the organization's founder, Michael Saylor, an active supporter of the crypto community, controls 46.8% of the votes, it is unlikely that such a vote would take place without his consent. Even if Bitcoin continues to fall, according to the businessman, the company will simply continue to buy coins, rather than liquidate its reserves.
Capital Raising Plans
While forced liquidation is unlikely, the main challenge for MicroStrategy could be its ability to continue raising capital, a critical part of its strategy. The company’s business model relies on issuing debt and selling shares to buy BTC, which in turn drives up the price of the cryptocurrency. If Bitcoin continues to fall, investors may be reluctant to fund new issuances, weakening the company’s ability to execute on its strategy.
Conclusion
While a forced liquidation is theoretically possible, it appears unlikely due to the company's debt structure, shareholder control, and long-term strategy to accumulate BTC. However, continued declines in the Bitcoin price could lead to a crisis that would hamper MicroStrategy's ability to raise capital.
Источник: cryptocurrency.tech
