Does MSTR Lose its Bitcoin if Prices Fall?
MSTR has funded Bitcoin purchases with debt. In this piece we're going to look at how some of the terms of this debt can potentially cause issues if BTC prices decrease.
This isn't talking about a margin call sort of event for MSTR, rather it's looking at the risk of terms they could be under in deals they've used to secure capital loans with BTC as collateral.
Note, it could be the case these deals have undisclosed agreements I do not know about. This is just generically looking at the terms of such loans.
Non-Recourse Loans
Non-recourse loans are generally better structured for the borrower. Giving them additional protection against "Recourse" from the lenders. However, there are still some terms under which the lender can do something. One of these terms is the loan, or collateral for it, can be called in if there's a significant change to the collateral value.
If you lend someone money against their home valued at $100,000 and then something happens to make the value of that home $10,000 - this is a very different deal to what you signed up for and in this situation you can make a claim to the collateral. Taking the house in exchange for the loan.
The Lenders
I do want to stress again I do not know the specific terms of the MSTR deals, but one thing that is notable is a lot of their money has come from places that would be expected to take big losses in a lot of areas in the event of their being a broad turn down in crypto and other hyper growth industries like AI.
This could be important because it creates a situation where it becomes possible that even although they do not want to do it, lenders may be forced into a situation of having to try to pull in as much as they can as they're bleeding out from other places. They could be required to call in the Bitcoin and then dump it on the market instantly to meet margin requirements.
Share Dilution
If this happens, then it seems almost unquestionable at this point Saylor would attempt to respond by raising more capital via share dilution. Something there's been more of during December of 2024. The problem is, what if it doesn't work? Previously selling shares and buying BTC made the stock rally. This time, not as much. Perhaps this has diminishing returns.
What would the attitude of investors become if the stock was dropping and there was more dilutions?
Not Your Cash, Not Your Coins?
How the specifics of the MSTR deals are structured is very important but hypothetically they may be in a situation where a dramatic change in BTC price made them vulnerable to lenders calling in loans and even being able to take these as Bitcoin given the collateral agreements.
Even if those lending to MSTR do not want to do something like that, it could be easily forced upon them if there was a concurrence of poor performance in different markets.
The trick of selling shares at market is no where near as effective when the stock price is down and it is declining. Didn't go so well for AMC.
==
It seems like it could all go horribly wrong.
This isn't talking about a margin call sort of event for MSTR, rather it's looking at the risk of terms they could be under in deals they've used to secure capital loans with BTC as collateral.
Note, it could be the case these deals have undisclosed agreements I do not know about. This is just generically looking at the terms of such loans.
Non-Recourse Loans
Non-recourse loans are generally better structured for the borrower. Giving them additional protection against "Recourse" from the lenders. However, there are still some terms under which the lender can do something. One of these terms is the loan, or collateral for it, can be called in if there's a significant change to the collateral value.
If you lend someone money against their home valued at $100,000 and then something happens to make the value of that home $10,000 - this is a very different deal to what you signed up for and in this situation you can make a claim to the collateral. Taking the house in exchange for the loan.
The Lenders
I do want to stress again I do not know the specific terms of the MSTR deals, but one thing that is notable is a lot of their money has come from places that would be expected to take big losses in a lot of areas in the event of their being a broad turn down in crypto and other hyper growth industries like AI.
This could be important because it creates a situation where it becomes possible that even although they do not want to do it, lenders may be forced into a situation of having to try to pull in as much as they can as they're bleeding out from other places. They could be required to call in the Bitcoin and then dump it on the market instantly to meet margin requirements.
Share Dilution
If this happens, then it seems almost unquestionable at this point Saylor would attempt to respond by raising more capital via share dilution. Something there's been more of during December of 2024. The problem is, what if it doesn't work? Previously selling shares and buying BTC made the stock rally. This time, not as much. Perhaps this has diminishing returns.
What would the attitude of investors become if the stock was dropping and there was more dilutions?
Not Your Cash, Not Your Coins?
How the specifics of the MSTR deals are structured is very important but hypothetically they may be in a situation where a dramatic change in BTC price made them vulnerable to lenders calling in loans and even being able to take these as Bitcoin given the collateral agreements.
Even if those lending to MSTR do not want to do something like that, it could be easily forced upon them if there was a concurrence of poor performance in different markets.
The trick of selling shares at market is no where near as effective when the stock price is down and it is declining. Didn't go so well for AMC.
==
It seems like it could all go horribly wrong.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.