The micro-strategy used to buy bitcoin could lead to ‘heavy losses’ if the market declines, says JP Morgan.

MicroStrategy has amassed 205,000 Bitcoin corporate treasury at a current market value of nearly $14 billion. It's enough that BlackRock bought shares of the iShares Bitcoin Trust to walk away with $15 billion worth of bitcoin.

But there is reason to be concerned about the way the company has been buying BTC, say JP Morgan analysts.

JPM analysts led by Nikolaos Panigirtzoglou said: “We believe that MicroStrategy's debt-backed purchase of bitcoin will add momentum and momentum to the current crypto rally and increase the risk of a future downturn becoming more severe.”

Michael Saylor, chairman of MicroStrategy, has been praised by laser-eye beaters for his laser-eyed strategy.

“This is the best investment property. So the end game is to get more bitcoins,” he recently told Yahoo Finance. “Whoever gets the most bitcoin wins. There is no other endgame.”

Saylor and MicroStrategy—which trade on the Nasdaq under the symbol MSTR—are no strangers to borrowing Bitcoin for cash and buying more Bitcoin. In its latest round earlier this week, MicroStrategy said it is offering up to $500 million worth of convertible senior notes to buy more BTC in 2031.

But a significant amount of leverage has not yet been recorded in the market.

Leverage refers to the ability to borrow money to increase the return on an investment. For example, a trader can use 5x leverage to open a $500 futures contract with $100 worth of BTC in their exchange account.

But it is used both ways. It can increase the profit and increase the loss.

Trading in the US faces many regulatory restrictions, especially using higher ratios. For example, crypto trading platforms like Coinbase and Kraken are allowed to offer leverage, but only up to 10x and 5x respectively, which is conservative compared to other countries.

Notional open demand for Bitcoin futures contracts recently rose to $34 billion, indicating increased optimism in Bitcoin's price rally.

Despite the optimism, the leverage used in the market is still a moderate 0.20, according to CryptoQuant. This means there is not yet a risk of widespread liquidity that could cause a market crash. Bitcoin's end of the year peaked at 0.40 in October 2022.

And actual open interest, measured in BTC units, is below the October 2022 peak of 667,550 BTC. Current open demand expressed in BTC has reached only 496 BTC, according to CoinGlass. That means energy hasn't reached a shock level that could signal a bubble or correction.