MicroStrategy and BTC
Since Co-Founder and CEO Michael Saylor first purchased bitcoin back in 2020, MicroStrategy’s stock price has tracked closely with that of BTC – even more so now that MicroStrategy holds significant amounts in crypto on its balance sheet.
If you want exposure to the price of Bitcoin, MSTR offers both direct and indirect investments to give you that exposure.
Why MSTR?
MicroStrategy (MSTR), as an enterprise software company, holds an advantageous position when investing in Bitcoin. MSTR holds considerable amounts of Bitcoin on its balance sheet, meaning investors stand to benefit directly from any increase in price of this cryptocurrency.
MSTR increased their Bitcoin holdings during Q2 of this year by purchasing 12,800 tokens, raising their total holdings to over 2.3 billion dollars and adding approximately $20 million in value. Their management team believes that Bitcoin could become a global currency as well as an effective store of value against inflation.
MSTR’s investments in cryptocurrency are just part of its overall business strategy. Additionally, the company has focused on transitioning core business intelligence customers from product licensing fees to subscription revenue growth in the cloud environment, leading to strong customer renewal rates as well as developing innovative products which could drive further expansion.
MSTR makes an attractive investment option for those interested in Bitcoin due to its ability to raise capital at attractive interest rates. Not only has the company used its treasury reserves and convertible debt notes to purchase cryptocurrency, but its leveraged bet has allowed it to acquire it at an average annualized interest rate of only 1.6%!
Comparative to its current blended weighted average interest rate on its outstanding debt and convertible notes of 2.1%, this represents a substantial savings to the company.
MSTR’s investment in cryptocurrency is paying dividends with strong earnings and a rapidly expanding product lineup. MSTR is well positioned to capitalise on the growing demand for business intelligence in the cloud and emerging market opportunities. Investors looking for exposure to Bitcoin price can do so through Coinbase shares, Marathon Digital Holdings’ mining facilities or companies that specialize in deploying blockchain technology.
Investing in cryptocurrencies
MicroStrategy may have taken some hits in the cryptocurrency market this year, but that hasn’t stopped it from aggressively expanding its bitcoin holdings. During the second quarter, MicroStrategy increased its cryptocurrency investments significantly and even made a small profit through dollar cost averaging, an investment strategy which reduces risk by buying fixed dollar amounts at regular intervals.
Microstrategy employs various financing mechanisms to expand its holdings, including convertible notes and senior secured loans. Convertible notes are an increasingly popular means of financing investments, and many investors use them to gain exposure to cryptocurrency such as bitcoin. Convertible notes act like equity that converts quickly into stock of the company when maturity arrives – offering investors lower interest rates compared with debt instruments such as bonds.
Finally, the company also uses senior secured loans as another form of financing when purchasing cryptocurrency such as bitcoin. This method provides more traditional pricing stability over longer periods and has enabled some of their largest bitcoin purchases to date.
MicroStrategy’s large bitcoin purchases have recently enabled it to reap many tax benefits, thanks to the currency’s rebound and reduced valuation allowance on investments made using it. As such, this has resulted in its first profitable quarter since 2020 and it continues to purchase additional bitcoin this year.
While taking on considerable risk by investing in bitcoin, they see tremendous long-term growth potential in this asset class. Michael Saylor, the company’s CEO recently told CNBC that buying it now was similar to investing in Facebook when it first started up.
Microstrategy’s commitment to its Bitcoin strategy should help generate increased institutional investor enthusiasm for cryptocurrencies. Furthermore, SEC approval of a spot bitcoin ETF will allow more investors to gain exposure to this asset class.
MSTR’s Bitcoin strategy
MicroStrategy’s recent Bitcoin purchase serves as further evidence that they remain bullish on cryptocurrency, especially as the market has experienced significant weakness since reaching an all-time high of $27,000 back in August.
MSTR has taken steps to bolster its Bitcoin holdings through treasury reserves. This involves diversifying short-term investments and bonds into noninflationary assets, with much of MSTR’s treasury reserves invested in Bitcoin and other cryptocurrencies.
Treasury reserves have allowed it to capitalize on the current price of Bitcoin by buying more of it at a reasonable borrowing rate and with low borrowing rates. They have even issued convertible debt notes in order to finance purchases.
MSTR has become one of the largest publicly traded holders of Bitcoin globally. They currently possess more than 0.7 million coins and look to grow this holding further; effectively acting like an alternative ETF.
MSTR’s hedging strategy has proven successful as the value of their Bitcoin hoard has steadily increased over the years, helping increase earnings and bring them back into profitability. MSTR is expected to experience further positive results as it transitions its business-analytics software into subscription-based services.
MSTR’s aggressive hedging strategy could disappoint investors in the short term. Issuer of debt and diluting shareholders to fund its Bitcoin investment could harm financial results if crypto markets do not rebound soon enough. MSTR’s Bitcoin investment could prove lucrative if the market recovers, so investors looking for exposure to the Bitcoin market should seriously consider buying MSTR stock. Current valuation reflects its substantial Bitcoin holdings and acts as an excellent alternative to purchasing spot bitcoin ETFs that aren’t yet available in the US. Earnings should be published November 1, and investors can watch to learn more about the company and its Bitcoin strategy.
Conclusions
MicroStrategy has long been one of the strongest supporters of cryptocurrency since announcing their first Bitcoin purchase in 2020. Chairman and Co-Founder Michael Saylor has become a household name within the industry by regularly appearing at crypto conferences to express his optimism for BTC; his optimistic view has made him one of the most sought-after financial voices within Corporate America.
The company is also an impressive institutional investor in Bitcoin, boasting an estimated Bitcoin portfolio worth nearly $4.6 billion – more than twice what any of their competition have put together – which shows their strong belief in its future as a global currency.
MicroStrategy’s investments primarily center around Bitcoin, yet they also hold substantial positions in several other cryptocurrencies. Their Ethereum (ETH) holdings may be significantly smaller than their Bitcoin holdings but don’t diminish MicroStrategy’s enthusiasm for this space.
Business intelligence software company also holds significant amounts of Bitcoin Cash and Ripple’s XRP; together these assets account for nearly half of their cryptocurrency holdings.
Though their BCH holdings have been negatively impacted by the current bear market, they have managed to retain much of their value and therefore generate unrealized profits on their cryptocurrency investments.
As the market has rebounded since 2022’s downward spiral, MSTR’s stock has surged over 160% year-to-date. This impressive success can be directly attributed to Bitcoin’s 85% price surge and subsequent increases in its treasury reserve.
MSTR’s Treasury Reserves are predominantly comprised of Bitcoin; however, the company does not plan to sell any coins anytime soon. Instead, their holdings could provide liquidity if necessary in case they need to raise funds or pay taxes – they recently secured a $205 Million Loan secured with these holdings to meet this objective.