According to a note released by Bernstein analysts on Wednesday, the possibility of Microstrategy’s BTC tokens needing to be sold for repayment of debt is closely tied to how BTC prices perform. The analysts believe that although MSTR’s position is not large enough to distort prices in itself, it presents a sentiment risk to BTC prices during down cycles.
MSTR’s debt stands at approximately $2.2 billion, with debt repayments only due in or after 2025 and 15K BTC pledged, out of 140K held. The analysts state that high BTC prices mean a stronger balance sheet, higher stock prices, and easier debt repayment without selling its BTC holdings through conversion of 2025/27 notes, or from new debt/equity issuance.
The analysts feel that MSTR adds reflexivity but is not a concentration risk. They add that the company’s potential BTC sale is an overhang in a bear market. In their words, “Like all levered longs, MSTR adds some reflexivity to BTC markets. However, it holds only ~0.7% of total BTC in circulation, and its holdings form ~20% of daily average traded volume in BTC spot markets. The small proportion of total market cap/daily volumes means MSTR does not necessarily pose a concentration risk, even if we consider that trading volumes drop during crypto bear markets.”
The analysts predict that MSTR’s large Bitcoin position could be an overhang during bear markets in H2CY22. In a potential bear market, MSTR’s balance sheet could appear weak, and it may not be able to raise capital to repay debt, forcing it to sell its BTC tokens. The potential liquidation of MSTR’s BTC during bear markets creates an overhang for BTC in a down cycle.
It is important to note that the analysts do not believe that MSTR’s position is large enough to distort prices in itself. However, they do believe that it presents a sentiment risk to BTC prices during down cycles. This is because the potential liquidation of MSTR’s BTC during bear markets creates an overhang for BTC in a down cycle.
The analysts also state that MSTR’s debt stands at approximately $2.2 billion, with debt repayments only due in or after 2025 and 15K BTC pledged, out of 140K held. They believe that high BTC prices mean a stronger balance sheet, higher stock prices, and easier debt repayment without selling its BTC holdings through conversion of 2025/27 notes, or from new debt/equity issuance.
Furthermore, the analysts feel that MSTR adds reflexivity but is not a concentration risk. They state that “Like all levered longs, MSTR adds some reflexivity to BTC markets. However, it holds only ~0.7% of total BTC in circulation, and its holdings form ~20% of daily average traded volume in BTC spot markets. The small proportion of total market cap/daily volumes means MSTR does not necessarily pose a concentration risk, even if we consider that trading volumes drop during crypto bear markets.”
In conclusion, the analysts predict that MSTR’s large Bitcoin position could be an overhang during bear markets in H2CY22. In a potential bear market, MSTR’s balance sheet could appear weak, and it may not be able to raise capital to repay debt, forcing it to sell its BTC tokens. The potential liquidation of MSTR’s BTC during bear markets creates an overhang for BTC in a down cycle. However, they do not believe that MSTR’s position is large enough to distort prices in itself.
