MicroStrategy, led by Michael Saylor, currently has Bitcoin with a price lower than the average of its acquisition price, which generates unrealised losses of 900 million dollars.
The current decline in the price of Bitcoin puts MicroStrategy under a significant threshold and results in an unrealised loss of 900 million. Both critics and supporters are at loggerheads regarding the next step the company will adopt.
The average price of Bitcoin has been higher than the present market value in the recent past. BullTheoryio on X points this out as a big move to the firm because it is the second time the company has experienced such a situation.
Will Forced Selling Begin?
BullTheoryio describes that MicroStrategy had overcome similar circumstances in the past. The average cost per cycle of the company was approximately 30,000 dollars at the final cycle. Bitcoin dropped subsequently to about 16000, minus 45 per cent of its value. Never did the company sell any Bitcoin, however.
The debt structure of MicroStrategy does not allow forced liquidation. Bitcoin as collateral is not in play, and there are no margin calls associated with the price. The majority of the maturities of debts go up to 2028-2030, not in the near term.
Total debt reaches $8.24 billion. At present value, the current Bitcoin is approximately 53.54 billion in value. The firm has saved sufficient cash to meet 2 1/2 years of interest payments and dividends.
Critics Sound Alarm Bells
A contrasting opinion is offered by NoLimitGains on X. This report states that Saylor bought 50 billion Bitcoin at a cost of $50 billion and that losses were about 10 billion when adjusted for inflation.
The majority of the purchases were made on borrowed funds, which are yet to be repaid. NoLimitGains threatens that it can get nasty, very ugly, very fast. The account anticipatedthe COVID crash risk ahead of time before it materialised.
According to NoLimitGains, MicroStrategy is doomed in the next 12 months. The investor claims that the centralisation of Saylor goes against the main idea of Bitcoin, describing the strategy as a Ponzi scheme destined to fail.
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Balance Sheet Provides Buffer
BullTheoryio opposes this by arguing that forced selling is not caused by short-term price fluctuations. Such assumptions are not upheld by the balance sheet structure of the company. Unrealised losses do not affect solvency and liquidity.
As Saylor has noted, there is one case to sell: when Bitcoin remains significantly under cost over a long period, the company may think about selling. Small-time action under average cost does not alter this calculus.
Immediate pressure is removed by the cash runway. MicroStrategy has a chance to fulfill obligations without selling Bitcoin. The company has enough reserves to manoeuvre through extended price fragility.
