Is MicroStrategy a bubble? What is the risk for Bitcoin’s price?

For retail investors, the question isn’t just whether MicroStrategy’s moves are driving Bitcoin above $100,000—it’s whether this approach is stable or setting the stage for a bubble.

How MicroStrategy is funding Its Bitcoin acquisitions

MicroStrategy's debt is often seen as a vehicle for Bitcoin investment rather than traditional corporate financing. The zero or low yield reflects a different investor base looking for Bitcoin exposure with potential for equity conversion, not traditional bond yields.

For bondholders, the lack of interest payments is offset by the potential for substantial profits from stock appreciation. However, this strategy ties both bondholder returns and MicroStrategy’s financial stability to the volatile Bitcoin market.

Could Bitcoin price crash doom MicroStrategy?

MicroStrategy’s play may seem bold, but it isn’t without risks. The company’s weighted average debt repayment period is over five years, meaning its obligations won’t fully materialize until after 2028. This long runway gives it flexibility to weather market downturns. 

If Bitcoin's price remains stable or rises, MicroStrategy can continue operations without urgent refinancing. However, a sharp Bitcoin crash could expose significant vulnerabilities. With much of its balance sheet tied to Bitcoin, MicroStrategy could face liquidity issues, needing to sell Bitcoin at unfavorable prices to meet debt obligations. 

If the premium drops to 1.5x or lower, shareholders could see smaller-than-expected gains, and convertible bondholders might avoid converting to equity if the stock underperforms relative to Bitcoin’s price increase. This could strain MicroStrategy’s finances, as it would need to repay bondholders in cash instead of equity.

While MicroStrategy offers leveraged exposure to Bitcoin, it amplifies the cryptocurrency’s inherent volatility. Directly investing in Bitcoin might provide simpler exposure with fewer layers of risk.

Alternatively, if Bitcoin prices climb, MicroStrategy could repurchase its bonds to avoid diluting shareholders—a move that would support its stock price and potentially provide greater returns.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.