tl;dr
BitMEX Research warns of substantial risk in MicroStrategy's strategy of issuing bonds to buy Bitcoin (BTC). While a forced liquidation is deemed unlikely, BitMEX highlights the potential impact of BTC's volatility on the firm's $4.25 billion worth of outstanding bonds. The report suggests that if B...
BitMEX Research has issued a warning about the substantial risk associated with MicroStrategy's bond-issued Bitcoin holdings. The report emphasizes the potential for forced liquidation and the possibility of shareholder interest prompting the sale of BTC to raise money.
MicroStrategy currently holds $4.25 billion in outstanding bonds, and the volatility in Bitcoin's price poses a significant threat to the valuation of the company's BTC holdings and debt. While BitMEX deems forced liquidation unlikely, they highlight the potential impact of BTC's volatility on the $4.25 billion outstanding bonds.
The report suggests that a significant decline in BTC's value, coupled with an inability to raise more debt, may lead to forced liquidation of Bitcoin. Furthermore, it notes that if stock premiums decrease, shareholder interests may prompt the company to sell Bitcoin, despite its current high trading value. At the time of the report, Bitcoin is trading at $90,434.
BitMEX Research has commented on the substantial risk associated with Michael Saylor and MicroStrategy's practice of issuing bonds to purchase Bitcoin. Despite deeming forced liquidation as "highly unlikely," BitMEX emphasizes the extreme volatility of Bitcoin and the unpredictable nature of the situation.
The report outlines MicroStrategy's five outstanding bonds, totaling $4.25 billion, with two others already fully called and paid for. It raises concerns about the potential for forced liquidation of the firm's Bitcoin holdings if the price of BTC crashes during the bonds' maturity dates, devaluing the BTC holdings in relation to their debt.
While BitMEX acknowledges the unlikelihood of forced selling to finance bond redemptions, it suggests that shareholder interests may eventually drive the company to sell Bitcoin. This scenario could unfold if the stock premium turns into a discount, making it financially favorable for shareholders to sell Bitcoin to raise money. However, as Bitcoin is currently trading at a premium, there is no immediate incentive to sell. The report concludes with a cautionary note that this favorable position may not last indefinitely. At the time of writing, Bitcoin is trading at $90,434.