Bitcoin Price Prediction: JP Morgan says Microstrategy’s $600M BTC plan could backfire

Insights:

Bitcoin (BTC) price peaked at $73,840 on March 14 before entering a sharp retracement below $69,000 on Friday March 15. MicroStrategy’s announcement of another 12,000 BTC purchase was a major bullish catalyst for Bitcoin price action this week, but JP Morgan analysts now warn of a potential curve ball ahead.

MicroStrategy Announces Plans to Fund $600M BTC Purchases with Debt notes

According to a March 15 statement, MicroStrategy plans to price its latest issuance of senior convertible notes at $525 million, with purchasers also granted an option to acquire up to an additional $78.5 million of the offering.

As such, the anticipated proceeds from this offering range between $515 million and approximately $592.3 million. The notes are slated to mature by March 2031, carrying an annual interest rate of 0.875%, payable semi-annually.

Investors who hold these notes will enjoy certain rights like the ability to request repurchase under certain conditions. Additionally, they will retain the flexibility to convert their notes into either cash or shares of MicroStrategy’s class A common stock.

The conversion rate for these notes stands at $2,327.31 per share, marking a premium of roughly 40% over MicroStrategy’s average share price of $1662.20.

The private offering targets qualified institutional buyers and remains subject to prevailing market conditions and other pertinent factors. Its sales would close by March 18.

JP Morgan Analysts issue warning on Microstrategy’s Leverage Purchase Approach

However, JPMorgan analysts have reportedly cautioned that the firm’s reliance on debt to purchase Bitcoin could exacerbate a market downturn.

The firm, led by BTC advocate Michael Saylor, has acquired over 15,000 BTC worth nearly $1 billion since the year began, primarily financed through a convertible debt offering.

According to the analysts, this funding approach has turned MicroStrategy into a leveraged player in the Bitcoin arena, amplifying the ongoing market rally.

They added that such debt-funded Bitcoin acquisitions contribute to market overheating and increase the likelihood of more significant deleveraging and cascading sell-off during a future market downturns.

Bitcoin Price Prediction: Imminent Rebound Above $70,000

Despite Bitcoin’s recent 5% pull-back from its recent record-breaking high of over $73,800, the market demand has remained steady, putting BTC in good stead for an early rebound.

In the short-term, BTC currently faces a challenge reclaiming the $70,000 territory. IntoTheBlock’s data shows that 602,380 addresses had aped in on the Bitcoin price rally last week, purchasing over 5630,490 BTC at the average price of $71,500.

If those traders look to sell early, Bitcoin bulls could struggle to establish a steady support base above that vital $70,000 resistance.

But if positive sentiment returns to the Bitcoin markets, a move towards the $80,000 could be on the cards, as the bulls may set their sights on prices higher than the previous top.