Original author: XinGPT (X: @xingpt)
TLDR: Let me first say the conclusion: It is theoretically possible, but the actual probability is very small
The leverage ratio is not high, the debt term is long, and there is no obvious debt repayment pressure in the short term
The premise of a financial crisis is that the value of Bitcoin has been at an extremely low level for a long time, and the probability of occurrence is low;
Founder Michael Saylor holds 46.8% of the voting rights, which allows him to avoid early redemption clauses in preferred debt and firmly control the companys operating direction
1. MicroStrategy’s Bitcoin Positions and Strategies
MicroStrategy has transformed from a traditional software company into the worlds largest Bitcoin holder, holding approximately 471,107 Bitcoins by the end of 2024. The total cost of these Bitcoins is approximately US$27.97 billion , with an average purchase cost of approximately US$62,500 per Bitcoin, and the market value of these Bitcoins at the end of 2024 is approximately US$41.79 billion.
MicroStrategys Bitcoin investment was financed through the issuance of bonds and additional stock . Its management (represented by co-founder Michael Saylor) regards Bitcoin as the companys main reserve asset and continues to purchase more Bitcoin through external financing rather than relying on cash flow from its own business. MicroStrategy mainly raises funds to purchase Bitcoin through four channels.
• Purchase with own funds
It is not the main source of funds. MicroStrategy has probably used no more than 500 million yuan to purchase Bitcoin.
• Issuance of Convertible Senior Notes
In order to purchase more Bitcoin, MicroStrategy began to issue convertible bonds to raise funds for purchasing coins.
Convertible preferred bonds are financial instruments that allow investors to convert bonds into company stocks under certain conditions. This type of bond is characterized by a low interest rate, even zero, and a conversion price that is higher than the current stock price. Investors are willing to buy such bonds mainly because they provide downside protection (i.e., the principal and interest can be recovered when the bond matures) and potential gains when the stock price rises. The interest rates of several convertible bonds issued by MicroStrategy are mostly between 0% and 0.75%, indicating that investors are actually confident in the rise in MSTRs stock price and hope to earn more income by converting bonds into stocks.
• Issuance of Senior Secured Notes
In addition to convertible senior bonds, MicroStrategy also issued $489 million of 6.125% senior secured bonds due in 2028.
Senior secured bonds are secured bonds with lower risk than convertible senior bonds, but they only have fixed interest income. MicroStrategy has chosen to repay the senior secured bonds in advance.
The following figure shows the current actual debt situation of MicroStrategy:
It can be seen that MicroStrategys total liabilities are currently 8.213 billion, its total assets (mainly Bitcoin) are worth 43 billion U.S. dollars, and its leverage ratio is 19%. In other words, Bitcoin will have to fall below 16,500, and this price will last until 2028 or even longer before MicroStrategy becomes insolvent.
• At-the-Market Equity Offerings
MicroStrategy issued additional shares to finance the purchase of Bitcoin, which does not generate debt, but the issuance of shares dilutes the equity of existing shareholders. The reason why existing shareholders agree to this additional issuance is that MicroStrategy has proposed a new indicator BTC Yield, which is the earnings per share of Bitcoin, which is the ratio of Bitcoin holdings to the diluted total share capital. In other words, when the market is rising, the proportion of shares held by users is reduced, but the Bitcoin content per share increases, and the amount of Bitcoin held by users may increase overall.
For example, MicroStrategys BTC Yield in 2024 is 74%, which means that the number of Bitcoins per share has increased by 74%, while the current BTC Yield in 2025 is 6.9%, and the goal is to reach 15% by the end of the year.
2. Short-term vs. long-term impact of Bitcoin price drop
Short-term impact:
• A drop in the price of Bitcoin will directly affect MicroStrategy’s financial performance . Accounting rules require companies to record impairment losses when Bitcoin prices fall, but cannot directly reflect earnings when prices rise.
• For example, when Bitcoin plummeted in 2022, the company recorded an impairment loss of $197 million in the fourth quarter, resulting in a quarterly loss. When Bitcoin rebounded in 2023, the company reduced the impairment loss due to accounting treatment and even made a profit at one point.
• The company currently has no Bitcoin collateral loans, so short-term Bitcoin price fluctuations will not trigger margin calls. However, stock prices are highly correlated with Bitcoin, and a fall in Bitcoin will often lead to a simultaneous fall in MicroStrategys stock price, which in turn affects the companys financing capabilities.
Long-term effects:
• If Bitcoin enters a long-term bear market, the company may face severe financing pressure. MicroStrategys software business is currently small, with full-year revenue of only about US$500 million in 2024, and it is still losing money, so it cannot accumulate a large amount of cash through its own business to cover debts or continue to buy Bitcoin.
• The Company’s current operating model is highly dependent on the capital markets. If Bitcoin remains depressed for a long time, investors may reduce their financing support for MicroStrategy or demand higher financing costs.
• If the price of Bitcoin remains below the Company’s average purchase price of US$62,500 per coin for an extended period of time, the book value of MicroStrategy’s Bitcoin assets will continue to be lower than its actual cost, which could affect investor confidence and further intensify stock price pressure.
• As the company’s management believes strongly in the long-term value of Bitcoin, even if the financial situation deteriorates, the company is unlikely to actively sell Bitcoin, but will instead maintain operations through new debt or equity financing. However, if financing is blocked, it may be forced to adjust its strategy.
3. Analysis of key financial data
Bitcoin holdings and valuation:
• As of the end of 2024, MicroStrategys Bitcoin holdings have a book value of approximately $23.9 billion (after impairment), but are worth approximately $41.79 billion based on market prices.
• Due to the accounting standards used by the company, if the price of Bitcoin falls below $30,000, the company will have to make further impairment provisions, which may increase stock price pressure.
Debt Levels:
• MicroStrategy’s total debt currently stands at approximately $8.2 billion, primarily in the form of convertible bonds with low coupons, some even at 0%.
• in:
December 2025 maturity: $650 million, 0.75% coupon
February 2027 maturity: $1.05 billion, 0% coupon
December 2029 maturity: $3 billion, 0% coupon
• Because some convertible bonds have conversion prices below current share prices, these bonds are more likely to be converted into stock rather than requiring cash repayment, so short-term debt risk is lower.
• However, if Bitcoin prices remain depressed in the future and MicroStrategy’s stock price falls below the conversion price, bondholders may demand cash repayment, which will increase the company’s cash flow pressure.
Cash Flow and Liquidity:
• In 2024, the companys operating cash flow was a net outflow of $53 million, with only $46.8 million in cash reserves, meaning MicroStrategy has almost no cash buffer.
• By the end of 2024, the company raised $15.1 billion through additional stock issuance, but if the stock price falls, the companys future financing ability may be affected.
• In 2025, the company also issued an additional batch of preferred shares with a dividend yield of 10% (previously expected to be 8%), indicating that financing costs have begun to rise.
Profitability:
• The company’s own software business revenue growth has stagnated, with software revenue falling 3% year-on-year in 2024, and the software business only contributing approximately US$500 million in revenue for the entire year.
• The company relies on book gains from Bitcoin investments, but due to the impact of impairment rules, reported profits fluctuate greatly and cannot form a stable profit model.
• In the future, if the price of Bitcoin does not continue to rise, the company may remain in a loss-making state for a long time, further increasing financing pressure.
4. Correlation between stock price movements and Bitcoin
• Over the past few years, the correlation between MicroStrategy’s stock price and Bitcoin price has reached 0.7 ~ 0.8, almost becoming a Bitcoin leveraged ETF.
• At the end of 2024, Bitcoin hit an all-time high (nearly $100,000), and MicroStrategys stock price soared to more than $500. But then Bitcoin pulled back, and the companys stock price plummeted 50% in a short period of time.
• Due to the leverage effect of the company’s Bitcoin holdings, MicroStrategy’s stock price tends to fluctuate more than Bitcoin itself. For example, when Bitcoin fell 40% in early 2025, MicroStrategy’s stock price fell more than 55%.
• The current market valuation of MicroStrategy is generally higher than the net value of its Bitcoin holdings, and some investors are willing to pay a premium to indirectly invest in Bitcoin through MSTR. However, if the price of Bitcoin falls, this premium may disappear, or even trade below net value .
5. Possibility of bankruptcy or financial crisis
In the short term, MicroStrategy still has strong debt repayment ability, but if Bitcoin enters a long-term bear market, it may cause financial difficulties.
• Asset vs. Liability Ratio: The company currently holds $41.79 billion in Bitcoin, which is far higher than its $8.2 billion in debt, so the short-term debt repayment pressure is relatively small.
But if the price of Bitcoin falls to $12,000 to $15,000, the companys Bitcoin assets will be lower than its total debt, and technical bankruptcy may occur.
• Debt maturity risk: USD 650 million of debt in 2025 may be resolved through equity conversion , but more than USD 4 billion of debt will mature between 2027 and 2029.
If Bitcoin remains low by then, MicroStrategy may find it difficult to refinance through additional stock issuance or new debt, and may need to sell Bitcoin to repay debts.
• Management Position: Michael Saylor controls 46.8% of the voting rights and can prevent the company from selling Bitcoin or changing its strategy.
But if the price of Bitcoin falls below a certain critical point, the company may be forced to take emergency measures, including selling some Bitcoin, restructuring debts, or even considering bankruptcy protection.
• As shown in the figure below, the convertible bond terms stipulate that if there is a major change in the company, investors can ask the company to repay the debt 12-18 months in advance, but the definition of major change mainly refers to the companys shareholders deciding to liquidate, and the majority of the voting rights of the companys shareholders are in the hands of Michael Saylor
in conclusion
MicroStrategy remains financially stable, but its highly leveraged strategy could lead to severe financial stress if Bitcoin prices experience a prolonged, deep decline . The companys fate depends entirely on the future trend of Bitcoin - if Bitcoin remains depressed for a long time, MicroStrategy could fall into debt or even go bankrupt; but if Bitcoin continues to rise, the company will maintain strong growth.
Reference:
1. https://x.com/KobeissiLetter/status/1894444669913723316
2. https://foresightnews.pro/article/detail/75137
3. Deep Research of ChatGPT
