Bitcoin: is MicroStrategy at risk of liquidation?

While the founder and CEO of MicroStrategy, Michael Saylor, is convinced that the price Bitcoin could reach $1 million in the future, there are those who wonder if his company is at risk of liquidation during this bear market.

Is MicroStrategy cornered by loans?

Some of the BTC they bought was financed by loans that need to be repaid. Some question whether the company will have enough funds to pay off these debts and whether some of its positions will be eliminated. 

Right now, MicroStrategy has just under 130,000 BTC, bought at an average price of about $30,000. Therefore, his investment as a whole is currently at a loss. She originally bought BTC simply using her own funds and this could cause nothing but possible capital losses on her balance sheet.

Like Saylor himself emphasizes, since MicroStrategy started buying BTC in August 2020, its total share price has risen by 73 % year to date, while for example Alphabet has only achieved +51 %, Apple +33 % and Amazon. +27 %.

So for now the situation appears to be under control, but it is worth noting that at some point they took out loans to finance further purchases at prices often well over $30,000.

In order to repay these loans, they will either have to sell some of the BTC they bought and pay off the debt, or they will generate enough cash flow to cover themselves. Right now their total BTC investment is in loss.

Recently, Saylor stated that the company's debt to buy BTC was $205 million, for which $410 million of collateral was required. In total, there are over 115,000 BTC that the company can use as payment for this loan, so only if the price falls below $3,500 would the company be unable to secure the loan.

However, it is not just a matter of insurance. The $205 million will have to be repaid somehow within three years, and if MicroStrategy's investment in BTC continues to lose money, they will have to find the money to repay it. In theory, they have almost three billion dollars in BTC to date to repay this loan, but if they were forced to actually repay it with BTC sold at a loss, the consequences for the company may not be good at all.

This loan matures a year after the next halving, so it is assumed that by then MicroStrategy's investment may be back in the positive. However, it is by no means a given that it will turn out exactly like that. 

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All content in this article is for informational purposes only and does not in any way serve as investment advice. Investing in cryptocurrencies, commodities and stocks is very risky and can lead to capital losses.