MicroStrategy Shares Slide After Announcing New $ 400 Million Debt Increase To Buy Bitcoin

A lackluster median balance sheet, excessive debt load, and excessively leveraged exposure to Bitcoin have plunged MicroStrategy shares by more than 63% since February. However, the business intelligence company has ignored the risks of its valuable valuations and now wants to increase its debt and buy Bitcoin at a profit (BTC).

MicroStrategy Announced on June 7 that “intends to raise $ 400 million of total principal amount of senior secured notes in a private offering […] to acquire additional Bitcoins. “The company already owns more than 92,000 BTC, worth about $ 3.31 billion at the current exchange rate, almost 1.5 times its main investment.

BTC / USD (blue) vs. MSTR (orange) Performance to date. Source: TradingView

MSTR plunged 2.17% to $ 469.29 a share after the opening bell of the New York Stock Exchange on June 7. At its year-to-date high, it was changing hands for $ 1,135.

Not making money

In previous statements, MicroStrategy clarified that it is building a Bitcoin portfolio as an insurance policy against the continued devaluation of major world currencies. But with its back-to-back purchases of Bitcoin, the company has effectively protected itself from more than just the decline of the US dollar. Here’s a hint: unprofitable lines of business.

MicroStrategy’s net income growth plummeted 121.90% in 2020. Source: Wall Street Journal

A look at MicroStrategy’s alternative asset holdings too show that the company is too biased towards Bitcoin, and that real estate accounts for less than 0.2% of total investments.

Its latest quarterly report also shows a weaker balance sheet as of March 31, with a debt-to-equity ratio of 4.55 – a significant debt load of $ 1.66 billion versus a stock valuation of $ 0.37 billion.

MicroStrategy has assets worth $ 2.44 billion as of March, of which $ 1.947 billion is Bitcoin. Source: WSJ

That’s particularly risky when you factor in Bitcoin’s price volatility. MicroStrategy does not generate enough income to pay off its debt load and is heavily reliant on Bitcoin earnings to do so. On top of that, he now wants to raise another $ 300 million, although his convertible notes won’t expire until 2028.

Juan De La Hoz, a closed-end / exchange-traded fund strategist, fears that MicroStrategy risks becoming insolvent if Bitcoin falls more than 50% in the future, pointing to the massive declines of the flagship cryptocurrency in the years 2014 and 2014. 2018. added that MicroStrategy will most likely liquidate its Bitcoin holdings to avoid insolvency.

TO additional that he would not invest in cryptocurrencies through leverage or invest in a company that does, hinting at his 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 prices sleepwalked through MicroStrategy’s early morning US announcement before trading began on the New York Stock Exchange. The BTC / USD exchange rate continued to trade sideways while holding support above $ 36,000.