- MicroStrategy has accumulated nearly $14 billion of Bitcoin by taking on debt, concerning JP Morgan analysts who warn the aggressive approach could worsen losses in a downturn.
- MicroStrategy Chairman Michael Saylor has been praised for the strategy of acquiring as much Bitcoin as possible, but the company funds purchases by borrowing against Bitcoin as collateral.
- While leverage used in Bitcoin markets is moderate, JP Morgan says MicroStrategy’s debt-funded buys add froth and leverage that raise the risk of severe deleveraging in a potential crash.
MicroStrategy has accumulated a massive Bitcoin treasury worth nearly $14 billion by taking on debt. But JP Morgan analysts warn that the company’s aggressive approach could exacerbate losses in a potential market downturn.
MicroStrategy’s Bitcoin Purchases
MicroStrategy has amassed over 205,000 Bitcoin, almost enough to match the $15 billion in Bitcoin that BlackRock has purchased for its Bitcoin Trust. MicroStrategy Chairman Michael Saylor has been praised for his strategy of acquiring as much Bitcoin as possible, calling it the “best investment asset.”
How MicroStrategy Funds Bitcoin Purchases
MicroStrategy and Saylor are no strangers to using Bitcoin as collateral to borrow cash and buy more Bitcoin. In the latest round earlier this week, MicroStrategy offered $500 million in convertible senior notes due in 2031 to buy more BTC.
JP Morgan’s Warning
JP Morgan analysts led by Nikolaos Panigirtzoglou wrote on Thursday: “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.”
Current Bitcoin Leverage Levels
The notional open interest of Bitcoin futures recently hit an all-time high of $34 billion, signaling a surge in optimism. However, leverage used in the market is still only 0.20 according to CryptoQuant, meaning there is not yet a high risk of liquidations that could trigger a crash. Measured in BTC units, open interest is way below October 2022 levels.
Conclusion
While MicroStrategy’s Bitcoin buys excite many crypto enthusiasts, the way the company is funding those purchases could exacerbate losses if the market drops, JP Morgan cautions. MicroStrategy’s high-risk approach has raised concerns despite relatively moderate leverage in current Bitcoin markets.
