What is MicroStrategy’s bitcoin liquidation price?

Many crypto investors are accustomed to collateralized lending such as margin in a brokerage account, perpetual futures, DeFi loans, yield farms, and other secured loans. In trust-minimized ecosystems like crypto, borrowers must give lenders some type of assurance that they will repay and almost always, that assurance takes the form of collateral.

A collateralized loan usually has a liquidation price, a threshold that allows the lender to sell the collateral on an emergency basis to repay the borrower’s obligation before asset prices collapse further.

Using this mindset, investors see MicroStrategy’s $7.2 billion in debt and 439,000 bitcoin (BTC) in available collateral and automatically assume that the company must have some sort of liquidation threshold on its debts.

Their suspicion has historical precedent. Indeed, MicroStrategy almost hit some of its liquidation triggers just two years ago — shortly after the collapse of FTX in November 2022.

At that time, MicroStrategy had outstanding debts to lenders secured by some of its BTC holdings. Fortunately, the price of BTC stopped its crash above $15,000 and never cascaded into the single digits that would have triggered liquidations.

Calculating the BTC price that would liquidate MicroStrategy

Fast forward to today, MicroStrategy currently has $46 billion in BTC yet has $7.2 billion in debt. It bought its 439,000 BTC at an average price of $61,725.

The question in the minds of many investors is simple: If BTC falls below $61,725, will progressively lower prices trigger a series of liquidations of MicroStrategy’s bitcoin?

At today’s market prices above $100,000 per BTC, MicroStrategy obviously has no liquidations to worry about. If the company were to sell just 15% of its BTC at today’s prices, it could easily pay off all of its outstanding debt.

However, with Bitcoin enthusiast Michael Saylor pulling the strings as executive chairman and a consistent decline at its legacy software business, it has no plans to sell any coins.

If not $16,500, then what?

Stonewalled with a rigid buy-and-hold corporate approach to BTC, MicroStrategy seemingly has the risk that its assets could be liquidated. For example, CryptoQuant CEO Ki Young Ju used elementary math to allegedly estimate MicroStrategy’s liquidation price as $16,500 per BTC.

However, that is as simplistic as it is incorrect. In truth, MicroStrategy doesn’t have any liquidation price.

Unlike at other times in MicroStrategy’s history, all of the company’s debt is now unsecured. Its creditors don’t hold any BTC as collateral and they have no power to force Saylor to sell any of it.

Lenders have simply accepted MicroStrategy’s promise to repay and most have accepted two types of principal repayment upon maturity: cash or MSTR shares.

Moreover, they have agreed to multiple years of debt term, delaying principal repayment for many years provided that MicroStrategy services the loans with small, quarterly interest payments.

So far, Saylor has been able to raise plenty of this type of debt at increasingly favorable interest rates — all the way to 0% on one of its recent rounds.

Using the proceeds of these debt offerings to buy BTC has so far been an excellent choice. With the currency trading near all-time highs, MicroStrategy’s outperformance recently earned the NASDAQ 100’s blessing as a new index constituent.

Read more: What is the next MicroStrategy catalyst after NASDAQ 100?

Obviously, a BTC collapse could cause panic among shareholders or lenders and force MicroStrategy to negotiate. However, there’s no particular price at which MicroStrategy must liquidate BTC.

It has approximately $7 billion of outstanding debt that matures in increments of a few hundred million dollars approximately once per year for the next decade. In the meantime, it only needs to make nominal interest payments and have sufficient cash upon principal maturity if a lender chooses to not elect conversion into MSTR shares.

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