Is MicroStrategy Running Out of Gas? How MSTR's Bitcoin Buying Spree Could Hit a Wall

The bitcoin price bounced above $87,000 early Thursday after slipping to a three-week low, despite major support from MicroStrategy (MSTR). The bitcoin-holding company has deployed $1.94 billion to buy the cryptocurrency over the past two weeks, spending more than it did over the prior three months. MicroStrategy is going full-throttle to avoid a scenario that Chairman Michael Saylor and CEO Phong Le have discussed recently, which could see the firm's enterprise value fall below the value of its bitcoin holdings.

Despite MicroStrategy scooping up more than 20,000 bitcoin in the past two weeks, the bitcoin price hasn't emerged from its slump, failing to rally like gold and silver after last week's Federal Reserve rate cut and relatively dovish outlook. MSTR stock has fared even worse, tumbling more than 9% on the week through Wednesday's close, the lowest since September 2024.

MicroStrategy's Key Metric: Bitcoin Per Share

As MSTR stock fails to get traction, MicroStrategy may be running low on fuel to keep buying bitcoin. To understand why, it's important to understand that MicroStrategy's goal in buying bitcoin is to increase the number of bitcoin it holds per share of stock. That's in keeping with the investment case MicroStrategy presents that MSTR stock provides investors with high-beta exposure to bitcoin, meaning it can rise faster when the bitcoin price appreciates, though fall faster when it depreciates.

Last week's at-the-market issuance of 4.8 million shares, which came at an average price of around 184, increased MicroStrategy's shares outstanding by 1.44%. The MSTR stock issuance paid 91% of the price of 10,645 bitcoin, raising MicroStrategy's holdings by 1.59%, so bitcoin per share increased by 0.15%. The increase was due almost entirely to the fact that MicroStrategy paid the rest of the purchase price by issuing $92 million in preferred stock.

MSTR Bitcoin Buying Power Fades

However, now that MSTR stock has fallen to 160.38 as of Wednesday's close, purchases made with its share price at current levels would require a heavier reliance on preferred stock. For example, even if MicroStrategy merely keeps bitcoin-per-share flat, buying another 10,000 bitcoin at the current price near $87,000 would require preferred issuance of more than $150 million, or 17% of the total price.

As of Thursday morning, MicroStrategy's enterprise value (which includes stock market valuation, preferred stock and convertible debt minus cash) exceeds the value of its bitcoin holdings by about 9%. MicroStrategy would lose that premium if MSTR stock fell to around 143, assuming the bitcoin price remained flat. If that happens, buying 10,000 bitcoin without diluting bitcoin per share would require paying more than 25% of the purchase price with the issuance of about $230 million in preferred stock.

Given that MicroStrategy preferred stock is carrying an average interest rate of 11% to 12%, and the trend is toward even higher rates, MicroStrategy's interest bill per share could go up noticeably, even if bitcoin per share stays flat.

MicroStrategy Builds Cash Reserve

As recently as Oct. 30, MicroStrategy said it would only issue more MSTR stock to buy bitcoin when it had a premium to its bitcoin holdings of at least 150%. But everything changed as MSTR stock dived amid a bitcoin price pullback and investors' growing focus on MicroStrategy's preferred dividend obligations and convertible debt, which might require repayment as early as September 2027 if MSTR stock continues to falter.

Not only did MicroStrategy make an abrupt shift to buying bitcoin primarily by issuing common stock, it also set aside $1.4 billion in cash to reassure investors that dividend payments were covered for the next 21 months. The upshot is that MicroStrategy may take its foot off the gas as relates to bitcoin buying to avoid piling up its interest costs if MSTR stock remains in a slump. Essentially, a rising stock price fills up the gas tank, especially if MSTR stock is rising vs. the bitcoin price.

However, pressure could remain on MSTR stock as investors look ahead to Jan. 15, the day by which MSCI is due to announce whether MicroStrategy will remain in the MSCI World and USA indexes.

Bitcoin Price

The bitcoin price fell as low as $85,418 on Wednesday afternoon, climbing to $87,160 overnight. The cryptocurrency found support around $85,000 in early December, and so far that support is holding.