According to a recent analysis by Regime Intelligence, MicroStrategy's bitcoin reserves may be less vulnerable to a crypto market crash than to a prolonged loss of access to capital markets. Such a risk could jeopardize the company's ability to fund about $1.76 billion in annual obligations without selling bitcoin.
The report states that MicroStrategy's hoard of 840,447 $BTC is backed by approximately $22 billion in debt and preferred equity holder claims. This means the bitcoin accumulation model depends on the company's ability to continuously raise new capital to meet its obligations.
Contrary to popular belief, MicroStrategy's (MSTR) key vulnerability is not a drop in bitcoin's price or liquidity issues, but its ongoing dependence on access to capital markets. The report notes that MicroStrategy's debt does not function like a typical margin loan backed by bitcoin: there is no $BTC-linked margin call that would force the company to liquidate assets if the price falls.
A Regime Intelligence stress test showed that bitcoin would need to fall by approximately 96% before MicroStrategy's bitcoin assets and reserves would no longer cover its convertible bonds. However, the risk shifts to the other side of the balance sheet: MicroStrategy must continue to pay about $1.76 billion per year in preferred stock dividends and interest regardless of bitcoin's price.
"In my view, MSTR's main challenge is to keep the flywheel operating to cover the annual payments on debt and preferred equity," the report's author, Sherif Saad, told Cointelegraph.
He stated that investors should watch MicroStrategy's preferred stock price and its cash reserves, which currently cover roughly 2.6 years of its payout volume.
If financing conditions worsen, the bitcoin accumulation strategy could reverse, forcing the company to more actively draw on reserves and sell bitcoin to meet obligations.
"During a prolonged $BTC downturn, the problem is exacerbated if MSTR's stock price and mNAV both decline," he said, adding that raising capital would then become "incrementally more challenging or expensive."
Following bitcoin's recent recovery, MicroStrategy's $BTC hoard is valued at $66.7 billion — above the company's net asset cost basis of $63.36 billion. Source: BitcoinTreasuries.NET
Related: Standard Chartered Analyst Expects $BTC at $100,000 as US Treasury Doubles Long-End Bond Buyback
Michael Saylor's Juggling Act
A significant part of the perceived risk surrounding MicroStrategy revolves around the company's willingness to use the bitcoin on its balance sheet, especially after Executive Chairman Michael Saylor spent years promoting a "never sell" stance. Therefore, it came as a surprise to some bitcoiners when MicroStrategy began selling $BTC this year to meet other business obligations.
Since May, the company has sold bitcoin four times, including a recent sale of 1,690 $BTC; the proceeds from these sales were used to fund preferred stock dividends, share buybacks, and to bolster the dollar reserve.
Despite these sales, MicroStrategy CEO Phong Le reminded investors that the company has accumulated "roughly 25 times more" bitcoin than it has sold this year. Earlier this month, he told CNBC that the company plans to resume bitcoin purchases later this year.
Related: Crypto Biz: $11.6 Billion Wake-Up Call Prompts Rethink on Self-Custodying Bitcoin
