As Bitcoin continues to decline, MicroStrategy may become a ticking time bomb hanging over the cryptocurrency market.
In the cryptocurrency space, MicroStrategy stands out for its unconventional operational methods. The company has adopted an extremely aggressive strategy—hoarding Bitcoin through leveraged financing. It holds hundreds of thousands of Bitcoins, accounting for over 2% of the entire market share, which is quite significant. MicroStrategy has always believed that the long-term price trend of Bitcoin will be upward, and therefore, it is willing to continuously increase its Bitcoin holdings through the issuance of bonds and stocks.
However, the persistent decline in Bitcoin prices has brought enormous risks to MicroStrategy:
On one hand, the risk of debt default has sharply risen. To accumulate Bitcoin, MicroStrategy has issued a large number of low-interest bonds. Currently, its average cost of acquiring Bitcoin is approximately between $35,000 and $40,000 per coin. Once the price of Bitcoin falls below this cost range, the company's assets will significantly shrink. And when the bonds mature, creditors will not ease their demands due to the drop in Bitcoin prices; they will still insist on timely repayments. Considering that MicroStrategy only generates about $500 million in annual profits from its software business, this amount is trivial compared to the repayment of huge debts, making the risk of debt default imminent.
On the other hand, this could also trigger a panic sell-off in the market. If Bitcoin prices plummet, MicroStrategy may be forced to sell a large amount of its Bitcoin holdings to repay its debts. Once these Bitcoins flood into the market, their sheer quantity will be hard for the market to bear, further driving down Bitcoin prices and creating a vicious cycle.
Against the backdrop of continuously falling Bitcoin prices, MicroStrategy faces a tough choice: whether to rely on its strong financial reserves to tough it out and become a "lone hero" in the cryptocurrency market, or to ultimately implode due to inability to sustain itself, becoming a "ticking time bomb" that triggers market turmoil.
