Will a significant fall in Bitcoin price lead to MicroStrategy's bankruptcy?

MicroStrategy has transformed from a traditional software company into the world's largest Bitcoin holding enterprise, holding approximately 470,000 Bitcoins by the end of 2024. The company purchases Bitcoin through various financing methods, including using its own funds, issuing convertible preferred bonds, issuing secured preferred bonds, and market stock issuance.

Currently, MicroStrategy's total liabilities are $8.2 billion, total asset market value is $43 billion, and the leverage ratio is only 19%. The price of Bitcoin needs to fall below $16,500 and maintain that level for a long time to cause the company to be insolvent.

In the short term, the fall in Bitcoin prices mainly affects the company's financial performance, but it will not trigger the risk of additional margin calls. In the long term, if Bitcoin enters a bear market, the company may face financing pressure, as its software business is relatively small and cannot accumulate enough cash through its own operations.

MicroStrategy's debt mainly consists of convertible bonds, which have a low coupon rate. $650 million due in December 2025, $1.05 billion due in February 2027, and $3 billion due in December 2029. Some bonds may convert into stocks, reducing short-term debt risk.

The company's stock price is highly correlated with the price of Bitcoin, with a correlation of 0.7-0.8. When Bitcoin reached an all-time high at the end of 2024, MicroStrategy's stock price soared above $500, but the subsequent pullback of Bitcoin led to a 50% drop in the stock price.

Although MicroStrategy still has strong debt repayment ability in the short term, if Bitcoin remains in a bear market for a long time, it may lead to financial difficulties. If the Bitcoin price falls to 12,000-15,000 USD, the company's assets will be below the total debt amount, which may result in technical bankruptcy.

However, founder Michael Saylor holds 46.8% of the voting rights, which allows him to prevent the company from selling Bitcoin or changing its strategy. Unless the price of Bitcoin falls below a certain critical point, the company is unlikely to be forced into emergency measures.

Overall, MicroStrategy currently maintains financial stability, but its fate entirely depends on the future trend of Bitcoin. If Bitcoin remains sluggish in the long term, the company may fall into a debt crisis; however, if Bitcoin continues to rise, the company will maintain strong growth.