Analysis of the Impact of Bitcoin Price Fluctuation on MicroStrategy

MicroStrategy has transformed from a traditional software company into the world's largest Bitcoin holding enterprise. By the end of 2024, the company holds approximately 471,107 Bitcoins, with a total cost of about $27.97 billion and an average purchase cost of approximately $62,500 per coin. By the end of 2024, the market value of these Bitcoins is approximately $41.79 billion.

The company mainly purchases Bitcoin through four channels: own funds, convertible preferred bonds, secured preferred bonds, and market price stock issuance. Currently, the company's total liabilities amount to $8.213 billion, total asset market value is $43 billion, and the leverage ratio is 19%. This means that the price of Bitcoin must fall below $16,500 and remain there for a long time to cause the company to become insolvent.

In the short term, the decline in Bitcoin prices will impact MicroStrategy's financial report performance, but it will not trigger the risk of margin calls. In the long term, if Bitcoin enters a prolonged bear market, the company may face severe financing pressure. Currently, the company's software business is relatively small, with total revenue of only about 500 million USD for the full year of 2024 and still operating at a loss, making it difficult to accumulate sufficient cash through its own business to cover debts or continue purchasing Bitcoin.

The company's operating model is highly dependent on the capital market. If Bitcoin remains sluggish in the long term, investors may reduce their financing support for MicroStrategy or demand higher financing costs. Nevertheless, the company's management firmly believes in the long-term value of Bitcoin, and even if the financial situation worsens, it is unlikely to actively sell Bitcoin.

MicroStrategy's current debt mainly consists of convertible bonds with relatively low coupon rates. Since the conversion price of some convertible bonds is lower than the current stock price, these bonds are more likely to be converted into shares rather than demanding cash payment, thus reducing short-term debt risk. However, if Bitcoin prices continue to remain low in the future, causing the company's stock price to fall below the conversion price, bondholders may demand cash payment, increasing the company's cash flow pressure.

The company's stock price is highly correlated with the price of Bitcoin, with a correlation of 0.7-0.8. Due to the leverage effect of holding Bitcoin, MicroStrategy's stock price fluctuations are often greater than that of Bitcoin itself. Currently, the market valuation of MicroStrategy is usually higher than its net asset value of held Bitcoin, but this premium may disappear if the price of Bitcoin drops.

In the short term, MicroStrategy still has a strong ability to repay its debts. However, if Bitcoin enters a long-term bear market, it could trigger financial difficulties. When the price of Bitcoin falls to $12,000-15,000, the company's Bitcoin assets will be below the total debt, potentially leading to technical bankruptcy. Over $4 billion in debt will mature between 2027 and 2029, and if Bitcoin is still at a low level at that time, the company may find it difficult to refinance through issuing new stocks or new debts.

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