A lackluster balance sheet, excessive debt load, and over-leveraged vulnerability to Bitcoin (BTC) have crashed MicroStrategy (MSTR) stock by more than 63% since February 2021 already. Nevertheless, the business intelligence company has ignored the dangers of its frothy valuations; it now wishes to increase more debts and buy Bitcoin with profits.
The business currently holds more than 92,000 BTC values roughly $3.31 billion in current exchange rates, nearly 1.5 times its chief investment.
At its year-to-date high, it was changing hands for $1,135.
Not making money
In its previous announcements, MicroStrategy has clarified it is building a Bitcoin portfolio as an insurance policy against the continuing devaluation of the world's major currencies. But with its back-to-back Bitcoin purchases, the company has effectively shielded itself from more than just the US dollar reduction. Suggestion: unprofitable lines.
A look into MicroStrategy's alternative asset holdings also shows the provider overly skewed towards Bitcoin, with property accounting for less than 0.2percent of the overall investments.
Its most recent quarterly report also showed a weaker balance sheet, using a debt-to-equity ratio in 4.55 -- a significant debt load of $1.66 billion from an equity allocation of $0.37 billion -- at March 31, 2020.
That's very risky when Bitcoin's cost volatility is taken into account. MicroStrategy doesn't generate sufficient income to service its debt load and enormously relies on Bitcoin gains to do so. Atop it now wishes to raise an additional $300 million, although its convertible notes aren't since maturity until 2028.
Juan De La Hoz, a CETF/ETF finance strategist, feared that MicroStrategy dangers becoming insolvent should Bitcoin fall by greater than 50 percent in the future, reminding the flagship cryptocurrency's massive declines in the year 2014 and 2018. The analyst added MicroStrategy would probably liquidate its Bitcoin holdings to prevent bankruptcy.
Hoz noted he would not invest in cryptocurrencies through leverage nor he would put money into a business that did thus, hinting his very high outlook for MicroStrategy and Bitcoin in 1 line.
It's simply too risky, you could lose all of it, and I would rather not take that chance.
Bitcoin costs sleepwalked through MicroStrategy's announcement early morning. The BTC/USD exchange rate continued trading sideways while maintaining service over $36,000.