Luna falls down, will MicroStrategy be next?

The star project Terra (Luna) fell by 50% overnight; its algorithmic stable currency UST was seriously decoupled from the US dollar and fell to $0.62; the Luna Foundation Guard smashed more than 70,000 BTC and still could not reverse the trend… In addition, the Federal Reserve added Due to various factors such as the interest rate reduction plan, BTC once fell below $30,000.

Butterfly effect, the interests of MicroStrategy, the largest listed company holder of Bitcoin, are damaged.


Self-mockery from MicroStrategy founder Michael Saylor

MicroStrategy and its founder Michael Saylor are staunch Bitcoin holders. Since 2020, MicroStrategy has been buying bitcoin with debt, and for two years its founders have stressed that they don’t plan to sell any of the company’s bitcoin investments.

On December 9, 2020, MicroStrategy announced the issuance of convertible senior notes with an aggregate principal amount of US$650 million, comprising US$550 million in convertible bonds and US$100 million in options, both with conversion dates on December 15, 2025. Among them, the coupon rate of the convertible bonds is 0.750%, and the interest is paid semi-annually. The conversion price is approximately $397.99 per share.

On February 17, 2021, MicroStrategy re-announced the issuance of convertible senior notes with an aggregate principal amount of US$1.05 billion, comprising US$900 million non-interest bearing convertible bonds and US$150 million options, both on December 15, 2027 . The conversion price is approximately $1432.46 per share.

On June 8, 2021, MicroStrategy announced the issuance of junk bonds with a total principal of $500 million due in 2028, with a coupon rate of 6.125% and interest payments semi-annually, so payments are due on June 15 and December 15 each year Interest of $15.3125 million.


In March, MicroStrategy took out a $205 million bitcoin-collateralized loan from Silvergate Bank to buy more bitcoins. MacroStrategy’s last purchase was in April of this year, when it bought an additional 4,167 bitcoins for about $190.5 million, with an average price of $45,714. As of April 4, 2022, MicroStrategy and its subsidiaries collectively held approximately 129,218 bitcoins, of which 14,109 bitcoins were held directly by MicroStrategy Incorporated and 115,109 bitcoins were held by MacroStrategy LLC, a wholly-owned subsidiary of MicroStrategy. The total purchase price of these bitcoins was around $3.97 billion, with an average purchase price of around $30,700 per bitcoin.

But the strategy of raising more than $2 billion in debt back-and-forth to buy bitcoin has a big risk: If bitcoin’s price falls below a certain level, it could trigger a margin call. MicroStrategy CFO Phong Le outlined on the company’s first-quarter earnings call on May 3 that MicroStrategy lends at a 25% loan-to-value ratio and margin calls occur at a 50% loan-to-value ratio. MicroStrategy is at risk of a margin call if Bitcoin falls to $21,000.

Phong Le revealed, “If the company adds more collateral to its loans, MicroStrategy can avoid being forced to sell its bitcoins below the purchase price. Before it reaches 50%, MicroStrategy can provide more bitcoins as collateral. , so it never gets there, so it never gets into a margin call situation.”

Is this really the case?

The 2022 Q1 financial report shows that as of March 31, MicroStrategy’s net interest expense was $11 million , mainly related to contractual interest expense and issuance costs related to 2028 secured notes, 2025 convertible notes and 2025 secured term loans Amortize the related long-term debt arrangements.

This is only Q1 data, the maturity of the long-term debt instrument includes the coupon interest payable of $15.3 million per half-year on the 2028 secured note in addition to the $2.4 million semi-annual coupon interest payable on the 2025 convertible note , as well as the estimated variable coupon interest payable on the secured term loan in 2025 of $700,000 per month (based on March 31, 2022 interest rates), so the interest payment alone would be approximately $43.8 million.

But MicroStrategy’s earnings weren’t pretty.


In Q1 2022, MicroStrategy’s operating profit is only $131,000, net income is -$168 million , and interest expenses have reached the upper limit of the company’s operating income. If things go on like this, MicroStrategy’s operating profit will not be able to cover interest. At that time, the only way to obtain cash flow is to continue to apply for the sale of additional shares (1,413,767 Class A common shares were issued in the second half of 2021) or to sell Bitcoin.

Although the Q1 2022 earnings report stated that no bitcoin has been sold, it also made it clear: “If cash and cash equivalents from future business activities are not sufficient for us to meet these obligations, we may seek to generate cash and cash from other sources. Cash Equivalents. Sources may include the sale of Bitcoin, additional borrowing secured by our Bitcoin, and the issuance and sale of shares of our Class A common stock. ”

At a current market valuation of just $2.475 billion, MicroStrategy’s stock is clearly trading below its crypto assets, suggesting investors may be exposed to its multi-billion dollar debt, weak software business, and highly volatile assets Feeling a little uneasy in the mouth.


Additionally, MicroStrategy’s share price is closely related to the price of Bitcoin. Since Bitcoin hit a record high of $69,000 in November last year, it has fallen more than 50% so far, while MicroStrategy stock has fallen more than 75% since November and nearly 60% since 2022.

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

Like (0)
Donate Buy me a coffee Buy me a coffee
Previous 2022-05-10 09:37
Next 2022-05-10 09:43

Related articles