MicroStrategy’s $2bn Bitcoin purchases threaten to worsen any downturn, JPMorgan warns

MicroStrategy’s $2 billion in Bitcoin purchases over the past six months risk exacerbating the hangover of any new downturn, JPMorgan warned in an investor note on Thursday.

MicroStrategy most recently bought $821 million worth of Bitcoin between February 26 and March 10 on the back of selling $1.2 billion in senior convertible notes at the start of the year, as DL News previously reported.

“We believe debt-funded Bitcoin purchases by MicroStrategy add leverage and froth to the current crypto rally and raise the risk of more severe deleveraging in a potential downturn in the future,” JPMorgan analysts wrote, without expanding on the point.

Senior convertible notes are a type of bond that can turn into company shares. They are also considered to be debt securities as the issuer agrees to pay interest to investors, who will also be paid back before other debts if a company fails.

The investment banking giant’s comments come as the crypto industry is in the throes of a huge crypto rally, led by Bitcoin surging to a new all-time high of $73,500. It currently trades at around $66,900.

“The sale of convertible notes shows that the company, by appearing to transform itself to a leveraged bet on Bitcoin, has also played a part in amplifying the rally,” JPMorgan wrote.

Headed by Bitcoin bull Michael Saylor, MicroStrategy is on a spending spree to buy up as much Bitcoin as it can.

The purchases are part of the software intelligence firm’s pivot to becoming a “Bitcoin development company.”

MicroStrategy holds 205,000 in Bitcoin, worth $14.7 billion, making it the world’s leading private holder of the cryptocurrency, according to Bitcoin tracker Bitcoin Treasuries.

MicroStrategy did not immediately return DL News’ request for comment.

Sebastian Sinclair is a markets correspondent for DL News. Have a tip? Contact Seb at sebastian@dlnews.com.