Strategy stock is down 55% from ATH but forced liquidations highly unlikely – Kobeissi

Strategy (previously MicroStrategy) stock has plunged more than 55% from its all-time high, fueling speculation that the company could be forced to sell off its massive Bitcoin (BTC) holdings.

With approximately 499,096 Bitcoin worth $43.7 billion, the firm has built one of the largest corporate Bitcoin reserves, but concerns are rising over its ability to sustain this strategy amid market volatility.

According to the Kobeissi Letter, the risk of forced liquidation primarily hinges on two key factors: a prolonged and significant drop in Bitcoin’s price and MicroStrategy’s ability to raise additional capital.

The company acquired its Bitcoin at an average price of $66,350 per coin. If Bitcoin were to fall well below that level and stay there, it could put pressure on MicroStrategy’s balance sheet.

However, liquidation is not an automatic process. The company’s debt agreements require a “fundamental change,” such as a bankruptcy filing or a stockholder-approved dissolution before creditors can demand repayment that could lead to a forced sale of assets.

Liquidity concerns

Strategy currently holds $8.2 billion in total debt, largely in the form of convertible notes that mature between 2027 and 2028.

Most of these notes have conversion prices below the company’s current stock price, meaning they are unlikely to trigger a near-term liquidity crisis.

With a leverage ratio of around 19%, the company’s Bitcoin holdings still significantly exceed its liabilities, reducing the immediate likelihood of insolvency.

For years, Strategy has followed a high-risk, high-reward strategy of borrowing money to buy Bitcoin. The company raises capital through convertible notes, purchases Bitcoin to increase its value, and then sells additional shares at a premium to acquire even more Bitcoin.

This approach has worked in past market cycles, allowing the company to sustain its position through Bitcoin’s price fluctuations.

Forced liquidation

The crucial question is whether Strategy can continue raising capital in the face of a declining stock price and market uncertainty.

According to the Kobeissi letter, if investor confidence erodes and the company loses the ability to issue new shares or refinance its debt, it may have to sell Bitcoin to meet its obligations.

However, for now, Strategy has time to navigate its financial challenges since most of its debt will mature several years from now,

While immediate liquidation appears unlikely, the company’s long-term stability depends on Bitcoin’s price trajectory and its ability to sustain its financing model. If Bitcoin remains stable or rebounds, MicroStrategy may be able to continue its strategy.

However, if the flagship experiences a prolonged downturn, pressure to sell could intensify, making forced liquidation a more realistic scenario.