MicroStrategy stock tumbled after a new $ 400 million debt increase was announced to buy more bitcoin

A lackluster balance sheet, excessive debt burden, and overly leveraged exposure to Bitcoin have seen MicroStrategy stock fall more than 63% since February. However, the business intelligence firm has ignored the risks of its frothy reviews and is now looking to increase its debt and buy more. Bitcoin (BTC) with income.

MicroStrategy announced today, June 7th, that it “intends to raise a total of $ 400 million in face value. […] buy additional bitcoins. “ The company already owns more than 92,000 BTC worth about $ 3.31 billion at current prices, almost 1.5 more than your initial investment.

Annual performance of BTC / USD (blue) versus MSTR (orange). Source: TradingView

The MSTR plunged 2.17% to $ 469.29 per share after the New York Stock Exchange opened on June 7. At its high for the year, the stock was trading at $ 1,135.

Without making any money

MicroStrategy stock tumbled after a new $ 400 million debt increase was announced to buy more bitcoin
MicroStrategy stock tumbled after a new $ 400 million debt increase was announced to buy more bitcoin

In previous statements, MicroStrategy made it clear that it would create a Bitcoin wallet as an insurance policy against the ongoing devaluation of the world’s major currencies. But with its continued purchases of Bitcoin, the company has effectively protected itself from more than just a falling dollar. A trail: unprofitable business areas.

MicroStrategy net income growth slumped 121.90% in 2020. Source: Wall Street Journal

This is also shown by a look at the alternative asset portfolios of MicroStrategy the company is overly biased towards bitcoin, since real estate accounts for less than 0.2% of total investments.

The latest quarterly report also shows a weaker balance sheet for March 31, with a debt of 4.55. This translates into a significant debt burden of $ 1.66 billion versus a capital valuation of $ 37 billion.

MicroStrategy had assets valued at $ 2.44 billion as of March this year, of which $ 1.94 billion was in Bitcoin. Source: WSJ

That is particularly risky when taking into account the volatility of the Bitcoin price. MicroStrategy does not generate enough revenue to pay off its debts, and it relies heavily on Bitcoin revenue to do so. She also plans to raise another $ 300 million, even though her convertible bonds won’t mature until 2028.

Juan De La Hoz, Strategist for private and public funds, fears that MicroStrategy is at risk of default should Bitcoin fall more than 50% in the future, indicating the massive declines in the leading cryptocurrency in 2014 and 2018. The analyst added that MicroStrategy will most likely liquidate its Bitcoin holdings to avoid bankruptcy.

sickle He added that he would not invest in cryptocurrencies through leverage or invest in a company that does. indicating its extremely bearish outlook for MicroStrategy and Bitcoin.

“It’s just too risky, you could lose everything, and I’d rather not take that risk.”

Bitcoin’s price sleepwalked from MicroStrategy’s early morning announcement in the U.S. before the New York Stock Exchange opened. The BTC / USD pair continued to fluctuate sideways while holding support above USD 36,000.

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