According to BitMEX Research, Michael Saylor and MicroStrategy’s system of issuing bonds to buy Bitcoin (BTC) carries significant risk.
In a new one reportBitMEX comments on the business intelligence company’s massive corporate holdings of Bitcoin, which it built largely through issuing debt.
While a forced liquidation is “highly unlikely,” BitMEX notes that Bitcoin is still extremely volatile and anything can happen.
BitMEX says MicroStrategy has five outstanding bonds with a principal amount of $4.25 billion, while two others have already been fully redeemed and settled. If the price of BTC were to crash during the bond maturities, causing MicroStrategy’s BTC holdings to devalue against its debt, BitMEX says there is potential for a forced liquidation of the company’s coins.
“However, if the price of Bitcoin drops significantly in value, perhaps to around $15,000 per coin and MSTR is unable to take on more debt, then Bitcoin ‘forced liquidation’ is something analysts may want to take into account…
The bondholders’ maturities and option dates are spread at very specific times between 2027 and 2031. Even if Bitcoin crashes to around $15,000, a forced sale to finance the cash redemption of the bonds is still unlikely in our view.
Because it is not likely that MicroStrategy will be forced to sell Bitcoin, in our view it is much more likely that it will be in the best interests of MicroStrategy shareholders to sell Bitcoin.
Right now, the stock is trading at a huge premium to NAV (net asset value). If this premium becomes a discount, which is almost inevitable at some point, and cash bond redemptions are due, then it would be in the best interest of shareholders to sell Bitcoin to raise the cash. However, even though the shares are trading at a premium, there is an ‘infinite money glitch’ and there is no reason to sell Bitcoin.
But this disruption won’t last forever.”
At the time of writing, Bitcoin is trading at $90,434.
Don’t miss a beat – Subscribe to receive email alerts straight to your inbox
Check price action
Follow us further X, Facebook And Telegram
Surf to the Daily Hodl mix
Generated image: DALLE3
