Where is the key support for Bitcoin? As the price approaches Strategy’s average cost, will MicroStrategy be liquidated?

The market has been highly volatile recently, with Bit falling below the $80,000 mark. Standard Chartered analyst Geoff Kendrick warned that Bit's recent price movements may test the support level of $69,000-$76,500, bringing it closer to the average purchase price of Strategy (MSTR). MSTR stock has also been sold off recently, and ABMedia will analyze, through several key indicators, whether MSTR is trading at a premium compared to Bit and whether there is a risk of it becoming "insolvent".

Bit at $70,000, Everyone is Watching

Standard Chartered analyst Geoff Kendrick expressed concerns about the recent outlook for Bit and Strategy (ticker MSTR). He believes the price range around November 6, 2024 (the day after the US election) is a key potential support area for Bit, with Bit in the $69,000 to $76,500 range being a critical support level.

In addition, BitMEX founder Arthur Hayes also believes that Bit may retrace to $70,000!

(Arthur Hayes Warning: Hedge Funds Taking Profits, Bit to Fall to $70,000)

Bit has broken below the neckline position of the past four months, and a decline of 50% from the high of $109,588 to $70,000 also seems to be a reasonable technical level.

Has Bit Approached Strategy's Cost Price?

Strategy currently holds 499,096 Bits, with an average cost of $66,357 per Bit, which is not too far from the starting point of the rally last November. The recent decline in Bit has also sparked a new round of discussions about the possibility of Strategy being liquidated!

(Microstrategy Liquidation Concerns Resurface: How Will the Bitcoin Price Crash Affect the Company?)

Strategy's current debt is $8.2 billion, and its preferred stock is $730 million. Since the preferred stock has a higher repayment priority than common stock, similar to bonds, if we consider both as company debt, the calculations are as follows:

• (Debt+Pref)/Market Cap: Accounts for 13% of the stock market value
• (Debt+Pref)/BTC NAV: Accounts for 21% of the value of the Bits it holds
• Bits account for 61% of the company's market value

Currently, its debt ratio is only 13%, so it is premature to say that the risk of "insolvency" due to the decline in Bit. In fact, ABMedia has analyzed its 2022 financial report, where there was a situation of "negative shareholder equity", but under the persistent efforts of founder Michael Saylor, who holds 46.8% of the company's voting rights, the company has weathered the bear market, and the liquidation threshold is now far below the market price of Bit.

(8,224+730)*1,000,000/499,096=$17,940 per Bit

Note: Here it is assumed that the shareholder's equity has completely lost its value, and the Bits need to be sold to fully repay the debtor's losses.

MSTR Premium Still Reaches 85%

By definition: Enterprise Value = Market Cap + Total Liabilities

Strategy's enterprise value is currently $80.5 billion, which is 85% higher than the $43.5 billion market value of the Bits it holds (calculated at a Bit price of $87,213).

Bit has risen 15% since early November last year, while MSTR's gain has been limited to 7%.