If Bitcoin falls further, can MicroStrategy be liquidated? Which level is very critical for liquidation in BTC?

While MicroStrategy (MSTR) is experiencing a significant drop of over 55%, speculation about the possibility of 'forced liquidation' has increased. With the company owning approximately 499,096 Bitcoin worth 43.7 billion dollars, many are questioning whether further price drops in Bitcoin will force MicroStrategy to sell its assets.

MicroStrategy has been accumulating Bitcoin for years with an average purchase cost of about $66,350 per BTC. This is not the first time concerns about liquidation have arisen; similar discussions emerged during the bear market of 2022 when Bitcoin dropped from around $70,000 to about $15,000. However, the key question still remains: Is this time different?

The foundation of MicroStrategy's Bitcoin strategy is based on its ability to raise capital. In a scenario where liabilities significantly exceed assets, this capability could be at risk. However, this situation does not necessarily mean "forced liquidation".

MicroStrategy's approach includes the following:

• Borrowing through %0 convertible securities.
• Using the capital to buy Bitcoin and increase exposure.
• Selling shares at a premium to raise additional capital.
• To expand assets further, repeat the loop.

Currently, MicroStrategy has approximately $43.4 billion worth of Bitcoin, reflecting a leverage ratio of about 19%, with a total debt of around $8.2 billion. More importantly, most of this debt is in the form of convertible securities with conversion prices below the current stock price and do not mature until 2028.

A forced liquidation will likely necessitate a 'fundamental alteration' within the company. Under current credit agreements, the early repayment of convertible bonds can be triggered under certain conditions. However, typically one of the following conditions will need to be met for this to occur:

• Shareholders voting to dissolve the company.
• Corporate bankruptcy.

MicroStrategy's co-founder and Chairman of the Board, Michael Saylor, holding 46.8% of the voting power, makes it unlikely for shareholders to initiate a liquidation movement.

For a serious liquidity problem to arise, Bitcoin would need to experience a sustained price drop of over 50% from current levels. Saylor has repeatedly dismissed the idea of forced liquidation, even claiming that the company would 'buy all the Bitcoin' if it dropped to $1. However, the role of convertible shareholders in such a scenario cannot be ignored.

A continuous decline in both Bitcoin and MSTR stock prices could hinder MicroStrategy's ability to raise capital, which is crucial for its long-term strategy. Investors have been witnessing the first bear market for MicroStrategy since its Bitcoin-focused strategy started gaining attention in 2024. The real question is: Will investors continue to "buy the dip"?

Michael Saylor's stance is clear: "Bitcoin is on sale." Time will tell whether the market will agree with this.