bitcoin Treasury firm Strategy (MSTR) said it can weather a potential drop in the price of the largest cryptocurrency to $8,000 and still honor its debt.
“The strategy can withstand a $BTC price reduction to $8K and still have enough assets to fully cover our debt,” the Michael Saylor-led company said in X.
The company, which holds more bitcoin than any other publicly traded company, has accumulated 714,644 BTC, worth approximately $49.3 billion at current prices, since adopting it as a treasury asset in 2020.
Over the years, it has accumulated bitcoins through debt, a tactic echoed by peers like Tokyo-listed Metaplanet (3350). He owes around $6 billion, equivalent to 86,956 BTC, against bitcoin holdings eight times larger.
While these debt-funded bitcoin purchases were widely applauded during the cryptocurrency bull run, they have become a liability in the wake of the token’s decline to nearly $60,000 from its October high of over $126,000.
If Strategy is forced to liquidate its bitcoin holdings to pay off debt, it could flood the market and drive prices down even further.
In Sunday’s post, Strategy assured investors that their bitcoin holdings would still be worth $6 billion even at a price of $8,000 BTC, enough to cover their debt.
The company noted that it does not have to pay all of its debt at once, as the maturity dates extend between 2027 and 2032.
To further allay concerns, Strategy said it plans to convert existing convertible debt into equity to avoid issuing additional senior debt. Convertible debt is a loan that lenders can exchange for MSTR shares if the share price rises high enough.
Not everyone is impressed
The skeptics persist.
Critics such as pseudonymous macro asset manager Capitalists Exploits point out that while $8,000 worth of bitcoin could technically cover the $6 billion net debt, Strategy reportedly paid around $54 billion for its stash, an average of $76,000 per BTC. A drop to $8,000 would equate to a massive $48 billion paper loss, making the balance sheet look ugly for lenders and investors.
The cash on hand would cover only about two and a half years of debt and dividend payments at current rates, the observer argued, and the software business generates only $500 million a year. That’s too little to handle the $8.2 billion in convertible bonds plus $8 billion in preferred stock, which demand large, ongoing dividends like endless interest bills.
All of this means that refinancing may not be readily available if bitcoin falls to $8,000.
“Traditional lenders are unlikely to refinance a company whose core asset has depreciated significantly, with conversion options that have become economically worthless, deteriorating credit metrics, and a stated policy of holding BTC for the long term (limiting collateral liquidity),” the observer said in a post on
Download on retail investors
Anton Golub, chief commercial officer at cryptocurrency exchange Freedx, called the “equitization” move a planned “dump” for retail investors.
He explained that buyers of Strategy’s convertible bonds have primarily been Wall Street hedge funds, which are not bitcoin fans but “volatility arbitrageurs.”
Arbitrage involves hedge funds profiting from discrepancies between the expected or implied volatility of a convertible bond’s embedded options and the actual volatility of the underlying stock.
The funds typically buy cheap convertible bonds and bet against stocks, or “short.” This setup helps them avoid large price swings, while profiting from bond interest, the ups and downs of volatility, and a “carry to par” momentum where deeply discounted bonds rise toward their full value at maturity.
According to Golub, the prices of Strategy’s convertible bonds had small ups and downs. But stocks swung wildly, allowing hedge funds to mint money from arbitrage: buying cheap bonds while betting against stocks.
This setup worked wonderfully when the stock was trading above $400, the trigger for bondholders to convert debt into equity. Hedge funds closed their short positions, bonds were converted and Strategy avoided cash payments.
At $130 a share, the conversion doesn’t make sense. Therefore, hedge funds will likely demand full cash repayment when the bonds mature, which could put Strategy’s finances under pressure.
Golub hopes the company will respond by diluting its shares.
“The strategy will be: dilute shareholders by issuing new shares, divest from retail through ATM sales, raise cash to pay hedge funds,” he said in an explanatory post on LinkedIn.
“The strategy only looks great during Bitcoin bull markets. In bear markets, the dilution is real and destroys MSTR shareholders,” he added.
