The company formerly known as MicroStrategy, now Strategy, is facing a major test as its stock price has dropped by more than 55% since the beginning of the year.
Challenges and Risks for MicroStrategy
With 499,096 BTC assets worth $44 billion, Strategy faces the question of whether it needs to liquidate Bitcoin on its balance sheet. The current market price of Bitcoin is significantly below the company's average purchase price of $66,350 per BTC, leading to billions in unrealized losses.
Role of Debt Obligations
Strategy's business model is built around Bitcoin accumulation, financing purchases through debt and equity raises. Currently, the company holds $8.2 billion in debt. A large portion of this debt is tied to convertible notes that can be converted into $MSTR shares when a certain stock price is achieved. Forced liquidation could occur if there's a ‘fundamental change’ in the company.
Future Challenges for the Company
While bankruptcy seems unlikely, the main risk for Strategy heads into 2027 when the first batch of convertible notes matures. Goldman Sachs analysts indicate that if Bitcoin prices drop another 50% and remain at those levels, creditors may refuse to roll over debt, forcing the company to scramble for cash.
Market participants are closely watching the developments surrounding Strategy, relying on Michael Saylor's assurances of the company's resilience, despite falling Bitcoin prices.
