Stress test MSTR: no bankruptcy, but Bitcoin per share could collapse

Analyst Adam Livingston has conducted a severe stress test on MicroStrategy (MSTR), and the results are striking. Even in the worst-case scenario, the company does not go bankrupt, but the amount of Bitcoin per common share could shrink dramatically. The test assumes a Bitcoin price crash to $26.611. closed capital markets, and forced Bitcoin sales to repay debt.

Bitcoin is available at OKX and Bybit.

What exactly does the stress test involve?

Livingston tests the scenario in which the Bitcoin price falls by 55% to $26.611 in the first six months. The mNAV (the ratio of market value to net asset value in Bitcoin) drops to below 0.50x, access to capital markets is cut off, and MSTR’s cash reserves run dry. The company would then be forced to sell Bitcoin to repay its senior debt.

In this scenario, the so-called claim ratio rises from 41.5% to 96.7%. This means that creditors claim an ever larger share of the total Bitcoin reserves. Cash runs out in month nine, after which MSTR must sell a total of 115,727 Bitcoin over three years. Yet at the end of the test period, the company still holds 731,636 Bitcoin, with an mNAV of 1.40x.

No death spiral, but a painful dilution

Livingston’s main conclusion is that the risk for common shareholders lies not in a sudden bankruptcy or a so-called death spiral, but in the massive dilution of Bitcoin per share. That figure falls in the worst-case scenario from 138,161 satoshis per share to just 7,884 satoshis. The modelled share price of MSTR drops to $1.01.

This is significant news at a time when Bitcoin is already under pressure. The price is currently fluctuating around $60K, a decline of 2.6% in the past 24 hours. Earlier this week, there were already signs of increasing panic selling below $60.000. Livingston thus argues that MSTR survives an extremely negative scenario, but that the value for common shareholders could be severely eroded.