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MSTR’s Bitcoin Holdings: A Look into the Company’s Convertible Debt
MSTR, a major corporate Bitcoin holder, has been in a downtrend for over three months. As of Wednesday, its stock was trading around $250, down 55% from its peak of $543 on November 21. Investors in leveraged MSTR products, such as the Defiance Daily Target 2x Long MSTR ETF (MSTX) and the T-REX ETF (MSTU), have suffered even greater losses, with the former plummeting 90% and the latter declining 85%.
The Forced Sales Question
A significant aspect of MSTR’s convertible debt highlights the potential for "liquidation prices" or forced Bitcoin sales. Notably, all of MSTR’s 499,096 Bitcoin remain unencumbered, meaning the company has not pledged any of its Bitcoin as collateral. An earlier convertible note using Bitcoin as collateral with Silvergate Bank was fully repaid.
According to Bitcoin Overflow, MSTR has $8.2 billion in total outstanding debt, backed by 499,096 Bitcoin, currently valued at $43.4 billion. The short answer is that as long as the value of MSTR’s Bitcoin exceeds its debt levels, the company would not need to sell any of its BTC holdings. In other words, Bitcoin would have to decline by about 80% from current levels to around $16,500.
A Deeper Dive
Two of the six outstanding convertible bonds – the 2029 and 2030 issues – are below their conversion price. These large bonds account for $5 billion out of the $8.2 billion total. Even then, the debt does not mature until 2029, allowing for recovery. In theory, MSTR could roll over more paper if necessary. If the value of the company’s Bitcoin were to drop below debt levels at the time the convertible bonds matured, and the MSTR stock price was below the conversion price (which would be very likely in that scenario), MSTR – to prevent massive dilution in its stock – would likely decide to sell its Bitcoin to repay the bonds in cash rather than converting them into equity.
Conclusion
In conclusion, MSTR’s Bitcoin holdings remain profitable, with an average cost basis of $66,300 per BTC and an unrealized profit of $10.65 billion at Bitcoin’s current price of around $87,000. The company’s convertible debt highlights the potential for forced Bitcoin sales, but as long as its Bitcoin holdings remain above its debt levels, it is unlikely to need to sell its BTC.
FAQs
Q: What is the current value of MSTR’s Bitcoin holdings?
A: MSTR’s 499,096 Bitcoin are currently valued at $43.4 billion.
Q: How much debt does MSTR have?
A: MSTR has $8.2 billion in total outstanding debt, backed by 499,096 Bitcoin.
Q: What is the conversion price for MSTR’s convertible bonds?
A: The conversion price for MSTR’s convertible bonds is not specified in this article.
Q: What is the potential for forced Bitcoin sales by MSTR?
A: As long as MSTR’s Bitcoin holdings remain above its debt levels, it is unlikely to need to sell its BTC. However, if the value of its Bitcoin were to drop below debt levels at the time the convertible bonds matured, and the MSTR stock price was below the conversion price, MSTR might decide to sell its Bitcoin to repay the bonds in cash rather than converting them into equity.
