Microstrategy Stock News and Forecast: Not the best looking strategy, now is it?

Microstrategy (MSTR) stock is once again front and center as the crypto world feels the effects of Bitcoin losing significant ground. Bitcoin began to struggle post-Friday's high CPI print as risk assets felt increased selling pressure. From there it accelerated those losses over the weekend, and at the time of writing on Monday Bitcoin is trading at $23,900 for a loss of 10%.

Microstrategy stock news: $21,000 margin call looms

Back in early May speculation mounted that MSTR was about to go bankrupt again due to a precipitous fall in the price of Bitcoin. Back then attention focused on comments made by CFO Phong Le on Microstrategy's post-earnings conference call.  "As far as where Bitcoin needs to fall, we took out the loan at a 25% LTV, and the margin call occurs 50% LTV. So essentially, Bitcoin needs to cut in half or around $21,000 before we'd have a margin call. That said, before it gets to 50%, we could contribute more Bitcoin to the collateral package, so it never gets there."

Not far to go then for the potential margin call, and indeed MSTR stock is collapsing in Monday's premarket, down 23% at the time of writing. CEO Michael Saylor is a controversial character with a cult-like status among crypto followers due to his strong belief in Bitcoin, and he has never been shy to talk about his book so to speak. "Bitcoin is better than gold. To call it digital gold is an understatement. It really is the hardest money in the history of the world."

Microstrategy stock forecast: Will MSTR go bankrupt?

This is the key question on investors' minds due to the obsession with the $21,000 margin call. On the same conference call as CFO Phong Lee's identification of the said $21,000 level, MSTR also outlined the large unencumbered holdings of Bitcoin it has.

"The remaining approximately 115,100 Bitcoins are held at the MicroStrategy subsidiary. Of the MicroStrategy of Bitcoins, approximately 19,500 Bitcoins are pledged as collateral toward the Bitcoin-backed term loan and over 95,600 Bitcoins remain unpledged and unencumbered." So it looks pretty safe to me from this viewpoint. While CEO Michael Saylor has vowed to never sell Bitcoin, he may have to, but he has plenty available in the mean time. The issue is not of solvency but rather an old-school-type rumor-led run. Convertible note holders may choose to convert to equity and sell it to recoup something if they believe they are likely to get nothing back from their bonds. To us though, it appears that noteholders cannot convert into equity until after 2026, so they are stuck and paying for their largesse during the pandemic. They lent money unsecured to a company to leverage up and buy Bitcoin. That is their issue, not Microstrategy's.

Bitcoin has broken a key technical level and looks vulnerable to more losses. Risk assets are going to struggle now with yet more rate hikes being priced in. Bitcoin is not an inflation hedge despite wishful thinking by its advocates. Not yet anyway, that may come with time and widespread adoption, but for now it is just a high-risk asset, and high-risk assets are going to suffer.

Bitcoin looks in big trouble from the break of support of around $29,000. The next support is at $11,000 on the weekly chart, with maybe a slight support at $18,000 from the consolidation period in November and December 2020. 

Bitcoin chart, weekly

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