MicroStrategy stock drops after announcing a new $400 million debt raise to buy Bitcoin

Poor balance sheets, excessive debt burdens, and over-leveraged Bitcoin (Bitcoin) Has crashed MicroStrategy (subway) Since February 2021, the stock price has risen by more than 63%. Nevertheless, this business intelligence company ignored the risk of a valuation bubble. It now wants to raise more debt and use the proceeds to buy Bitcoin.

Micro strategy Announce On Monday morning, it “plans to raise US$400 million in the total principal amount of senior secured notes in a private placement […] To get more bitcoins. “The company already holds more than 92,000 bitcoins, which are worth about US$3.31 billion at the current exchange rate, which is almost 1.5 times its principal investment.

Year-to-date performance of BTC/USD (blue) and MSTR (orange). Source: TradingView

After the New York market opened on Monday, MSTR plunged 2.17% to $469.29 per share. At its year-to-date high, it changed hands at a price of $1,135.

Do not make money

In the previous statement, MicroStrategy has clarify It is building a Bitcoin investment portfolio as an insurance policy to prevent the continued depreciation of the world’s major currencies. But by continuously buying Bitcoin, the company effectively protected itself from the depreciation of the U.S. dollar. Tip: Unprofitable business lines.

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

check it out MicroStrategy’s holdings of alternative assets It also shows that the company is overly biased towards Bitcoin, and real estate accounts for less than 0.2% of the total investment.

Its latest quarterly report also showed that as of March 31, 2020, the balance sheet was weak, with a debt-to-equity ratio of 4.55, a debt burden of US$1.66 billion, and a stock valuation of US$370 million.

As of March 2021, MicroStrategy holds $2.44 billion worth of assets, of which $1.947 billion is Bitcoin.Source: Wall Street Journal

This is especially dangerous in the following situations Bitcoin price fluctuations Be taken into account. MicroStrategy did not generate enough revenue to repay its debt burden, and relied heavily on Bitcoin profits to repay debt. Most importantly, it now wants to raise another US$300 million, although its convertible notes will not expire until 2028.

CETF/ETF fund strategist Juan De La Hoz worried that if Bitcoin fell more than 50% in the future, MicroStrategy would face the risk of insolvency, reminding the flagship cryptocurrency to fall sharply in 2014 and 2018. The analyst added that MicroStrategy is most likely to liquidate its Bitcoin holdings to avoid bankruptcy.

to famous He does not use leverage to invest in cryptocurrencies, nor does he invest in companies that do so, which hints at his extremely pessimistic outlook on MicroStrategy and Bitcoin.

This is too risky, you may lose everything, I would rather not take this risk.

Bitcoin price sleepwalking in the early morning announcement of MicroStrategy. The BTC/USD exchange rate continued to trade sideways while maintaining support above 36,000 USD.