MicroStrategy, recognized as the largest corporate holder of Bitcoin, has consistently represented the most daring institutional investment in the cryptocurrency space. The steadfast belief of co-founder and chairman Michael Saylor in Bitcoin has consistently shaped the company’s approach over the years. However, recent developments from an SEC filing suggest that MicroStrategy may face pressure to liquidate part of its Bitcoin holdings due to financial strains and the downturn in Bitcoin prices. Such consequences could extend beyond the firm’s financial statements and influence the overall Bitcoin market.
Increasing Debt, Negative Cash Flow, and Bitcoin as a Lifeline
In a recent Form 8-K submitted to the SEC, MicroStrategy revealed several critical financial weaknesses. At the time of the filing, the company reported it held 528,185 BTC, purchased at an average price of $67,458 per Bitcoin, resulting in a total cost basis of approximately $35.63 billion. Yet, despite its substantial Bitcoin reserves, MicroStrategy acknowledged that its primary enterprise software business has not generated positive operational cash flow. Furthermore, the company is carrying $8.22 billion in debt and grappling with an annual interest obligation of $35.1 million.
Although MicroStrategy has issued more than $1.6 billion in preferred stock tied to significant annual dividend commitments of $146.2 million, these obligations remain unmet. The firm made it clear that it anticipates needing to depend on debt or equity financing to fulfill these commitments, which may become increasingly difficult if Bitcoin’s price falls sharply. The report cautions that a significant drop in the market value of its holdings could hinder the company’s ability to secure funding, potentially forcing it to liquidate Bitcoin at a loss.
At the time of the report’s filing, BTC was trading a mere 13% above MicroStrategy’s average purchase price. Given that Bitcoin constitutes the majority of MicroStrategy’s assets, its financial health is closely linked to the cryptocurrency’s price. Consequently, any decline below this critical threshold could trigger a series of declines in stock prices, ultimately exerting downward pressure on Bitcoin’s price itself.
Michael Saylor’s Response: Committed to the Strategy
Michael Saylor, co-founder and former CEO of MicroStrategy, has been one of Bitcoin’s staunchest advocates and played a pivotal role in the firm’s Bitcoin strategy. After the news of the report surfaced, Saylor took to social media platform X, where he simply tweeted: “HODL,” a widely recognized sentiment among crypto enthusiasts representing a long-term commitment to Bitcoin.
The tweet garnered over 1.4 million views and resonated with numerous bullish supporters, as reflected in the comments. He followed up with another post stating: “Bitcoin is the Best Idea. There is no Second Best.”
As of this writing, BTC is trading at $81,900, reflecting a 6% increase in the past 24 hours. Even if MicroStrategy were to divest any Bitcoin from its holdings now, it wouldn’t be the first instance of such a sale; on December 22, 2022, the company sold 704 BTC for $11.8 million under comparable circumstances.
