Bernstein, which manages approximately $600 billion in assets, has issued a warning that software company MicroStrategy, which has become the largest institutional Bitcoin investor through its Bitcoin (BTC) purchases, may have to sell its BTC holdings.
In its report published on July 11, Bernstein stated that MicroStrategy, which holds over 150,000 BTC due to its long-term borrowing plan, may have to sell, especially for its debt due in mid-2025. According to the report, MicroStrategy’s sales will only be based on extreme drops in the Bitcoin price.
The report noted that a higher Bitcoin price provides MicroStrategy with a stronger balance sheet, higher stock price, and easier debt repayment without the need to sell its BTC holdings. The report also mentioned that a strong Bitcoin price and higher stock price would allow the company to borrow more, raise equity, and utilize existing convertible bonds.
On the other hand, if the Bitcoin price drops and reaches extremely low levels, MicroStrategy will be forced to sell its BTC holdings if they cannot cover the debt and certain contracts after June 2025. The report cited the debt due in 2028 and the existence of liquidity contracts that can extend the debt until 2025/2026 as reasons for this selling pressure.
Gautam Chhugani and the Bernstein analysts wrote, “Using debt as a strategy has always resulted in instability, given the high volatility of Bitcoin, and one-time forced liquidations can never be ignored.”
The report highlighted that MicroStrategy holds approximately 152,000 BTC, with a total cost of around $4.5 billion and an average purchase price of approximately $29,600. The analysts added that the company’s BTC holdings account for about 0.78% of the total BTC supply and about 20% of the average daily BTC trading volume.
According to the report, the market value of MicroStrategy’s Bitcoin holdings accounts for 95% of the company’s market value when excluding the debt taken to buy BTC, and about 49% when adjusted for the company’s market value.
The report also mentioned that the ability to refinance debt maturities would greatly increase if the company’s stock price and the value of its BTC holdings significantly increase.