In a recent statement, the treasury firm Strategy, led by Michael Saylor, has reassured investors regarding its ability to weather a significant decline in Bitcoin’s value. The firm claims it can sustain a possible drop of the cryptocurrency to as low as $8,000 while still being able to meet its debt obligations. Strategy holds a substantial amount of Bitcoin, with 714,644 BTC in its reserves, translating to approximately $49.3 billion at current market prices. This accumulation began in 2020 when the firm adopted Bitcoin as a treasury asset.
Presently, Strategy has incurred about $6 billion in debt, which is equivalent to around 86,956 BTC. Notably, this debt is well below the value of the company’s Bitcoin holdings, even if the market were to see a drastic plunge. In a post on X, the company indicated that its Bitcoin assets would still hold a $6 billion value even at the lower price point, thus covering its liabilities.
The company’s debt isn’t due all at once; the repayment timeline extends between 2027 and 2032. Additionally, to mitigate potential financial strains, Strategy intends to convert existing convertible debt into equity, a move designed to limit the issuance of new senior debt.
Nonetheless, a strong wave of skepticism surrounds these claims. Critics, including pseudonymous macro asset manager Capitalists Exploits, argue that despite the technical cover for the debt, Strategy’s purchase price for its Bitcoin was significantly higher. The average cost per BTC came to around $76,000, meaning a drop to $8,000 would result in substantial paper losses, potentially exceeding $48 billion. Such a scenario could cause serious concerns among investors and lenders.
The firm’s cash reserves are reportedly only sufficient to cover around 2.5 years of debt and dividend payments, far less than the $8.2 billion in convertible bonds and $8 billion in preferred shares that require ongoing dividends. This misalignment raises questions about refinancing opportunities if Bitcoin’s price falls dramatically.
An observer noted that traditional lenders may hesitate to refinance a company whose primary asset has devalued, especially given the deteriorating credit metrics and the firm’s stated long-term holding strategy for Bitcoin. As a result, new debt issuance could demand high-interest yields, becoming increasingly challenging to obtain in a stressed market.
Critics such as Anton Golub, the chief business officer at crypto exchange Freedx, have labeled the company’s strategy as a potential “dump on retail investors.” He pointed out that the buyers of Strategy’s convertible bonds are mainly Wall Street hedge funds, who profit from volatility and discrepancies in valuations between bonds and stock. Such hedge funds typically engage in short selling, allowing them to navigate market fluctuations more easily.
The current market dynamics indicate that while conditions favored hedge funds during the earlier phase of Bitcoin’s market rise, the reverse could occur as the cryptocurrency struggles to maintain its value. If the stock price drops significantly, hedge funds may press for full cash repayment when the bonds mature, potentially putting Strategy’s financial health at risk.
As skepticism mounts regarding Strategy’s long-term viability amidst fluctuating Bitcoin prices, the firm faces ongoing challenges in maintaining investor confidence and managing its complex financial structure. The future for Strategy remains uncertain, particularly in a market that can be unforgiving for firms heavily leveraged on cryptocurrency assets.
