Analysts Warn Against MicroStrategy’s Bitcoin Debt Acquisition

MicroStrategy continues to build its crypto portfolio, with the company selling USD $500M worth of convertible notes to buy more BTC.
Banking giant JPMorgan has warned against this move, suggesting too much debt-funded Bitcoin holdings can exacerbate any potential market downturn.
Leverage plays a big role in market trends, as it allows a lot of money to pump or dump in a small amount of time.
Meanwhile, Bitcoin has bounced back after a poor weekend to settle at around USD $68K.

Michael Saylor and Microstrategy have somewhat of a “whatever it takes” when it comes to buying up Bitcoin. The tech giants are already by far the largest corporate holder of BTC, and are showing no signs of slowing down. Amid a recent announcement that the team plans to add USD $500M+ (AUD $750M+) worth of Bitcoin to its portfolio, some analysts are concerned about its potential market-wide impact.

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JPMorgan Fears Overleveraged BTC Holdings Could Cause Market Spiral

If MicroStrategy were just picking up BTC normally, there wouldn’t be much of a problem. However, according to JP Morgan, the way Saylor is financing these acquisitions could pose an issue somewhere down the line.

MicroStrategy previously used leveraged Bitcoin “bets” to buy up BTC, meaning they don’t have to pay as much to buy the coin, but are risking higher losses in the case of a market downturn.

We use cheap capital…[using] a combination of leverage, and then offering our shareholders a yield.

Michael Saylor

And now MicroStrategy plans to buy even more BTC by offering shareholders convertible debt notes valued at between $525 million and $592 million (AUD $800M+). These instruments are set to “mature” in 2031, allowing holders to exchange the notes for cash or MSI shares.

According to JPMorgan, MicroStrategy has positioned itself as a major player in the current market rally and any potential crash over the next few months by employing debt and leverage as a funding technique.

We believe debt-funded Bitcoin purchases by MicroStrategy add leverage and froth to the current crypto rally and raise the risk of more severe deleveraging in a potential downturn in the future.

Nikolaos Panigirtzoglou, lead analyst at JP Morgan

Related: Australian Analyst Unveils Key Mistakes to Avoid in Bull Markets

Despite the warning, Bitcoin has rebounded after a tough weekend. The digital currency sank from its all-time high down to $65K (AUD $100K), but found support at this level and is now trading at about $68K (AUD $103K).