In recent months, the stock of Strategy, previously known as MicroStrategy, has faced significant pressure amidst a volatile cryptocurrency market, particularly due to the fluctuating price of Bitcoin. Since early October, Bitcoin has seen a marked decline from its highs, and Strategy’s stock has suffered a similar fate, dropping nearly 50% from its peak. This sudden downturn has left investors concerned about the company’s capacity to meet its financial obligations, particularly if it were to be forced to sell its substantial Bitcoin holdings.
Currently, Strategy boasts approximately 650,000 bitcoins, amounting to over 3.1% of Bitcoin’s total supply of 21 million. The company invested around $48.4 billion to amass this position, with an average cost per coin of roughly $74,400. Despite recent market fluctuations, Bitcoin has been trading at about $93,000, down from a peak of $126,000 in early October. This suggests that while the company’s gains have diminished, it remains profitable on paper, indicating that it does not face immediate bankruptcy risks as long as Bitcoin’s price remains relatively stable.
On the liability side, Strategy has approximately $8.2 billion in convertible debt and about $6.6 billion in preferred equity. Collectively, these liabilities account for just over 20% of the company’s Bitcoin net asset value. Furthermore, having paid off its older Bitcoin-backed loan earlier this year means that its current Bitcoin holdings are not pledged against any margin loans. Thus, while the stock remains highly sensitive to Bitcoin’s price fluctuations, Strategy is still far from being in a catastrophic position.
The potential ramifications of a forced sale of Bitcoin by Strategy raise questions about the overall health of the cryptocurrency market. Recently, the company’s CEO, Phong Le, emphasized that any decision to sell would depend on specific conditions: notably, if the stock trades below its Bitcoin value per share and if the company loses its access to funding through equity and debt markets. Given that a Bitcoin price around $25,000 would bring Strategy precariously close to insolvency, investors have some breathing room before worrying about an imminent fire sale.
Should the market deteriorate to the point where the company is compelled to sell, it would likely exacerbate already challenging conditions for Bitcoin itself. However, the current state of the Bitcoin market offers some reassurance. The landscape has become more institutionalized, with exchange-traded funds (ETFs) managing thousands of coins and various sovereign and corporate entities continuing to accumulate Bitcoin. As such, any large-scale selling by Strategy could find itself buffered by a deeper market, which may help mitigate sharp declines.
Ultimately, while Strategy’s present challenges resonate within the crypto community, they are likely more of a concern for investors than a fundamental threat to Bitcoin’s overall viability. The company’s substantial holdings are still robust against current market conditions, and the long-term investment thesis for Bitcoin remains intact, primarily due to its fixed supply. As Strategy navigates these uncertain waters, it remains a prominent player but not the only significant buyer in the market.
