JPMorgan cautioned in an investor note on Thursday that MicroStrategy’s $2 billion worth of Bitcoin purchases over the past six months could exacerbate the aftermath of any forthcoming downturn in the market.
MicroStrategy notably acquired $821 million worth of Bitcoin between February 26 and March 10, following the sale of $1.2 billion in senior convertible notes at the beginning of the year, as previously reported by DL News.
“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, although they did not provide further elaboration on this assertion.
Senior convertible notes, the instrument MicroStrategy used to finance its Bitcoin purchases, are a form of bond that can be converted into company shares. They are considered debt securities, as the issuer commits to paying interest to investors, who also have priority repayment status over other debts in the event of company insolvency.
JPMorgan’s observations come amid a significant crypto market rally, with Bitcoin hitting a new all-time high of $73,500. Currently, it is trading 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 remarked.
Under the leadership of Bitcoin advocate Michael Saylor, MicroStrategy has embarked on an aggressive purchasing spree to accumulate Bitcoin, positioning itself as a “Bitcoin development company.”
As of now, MicroStrategy holds 205,000 Bitcoins, valued at $14.7 billion, solidifying its position as the world’s foremost private holder of the cryptocurrency, according to Bitcoin tracker Bitcoin Treasuries.