Between 2011 and most of 2020, MicroStrategy’s market capitalization ranged between $1 billion and $2 billion. Today its capitalization is 85 billion dollars, and the blame lies with a cryptocurrency: bitcoin. What has happened? Let’s see it.
What is MicroStrategy. Founded in 1989 by Michael J. Saylor (pictured), Sanju Bansal and Thomas Spahr, the company began developing software solutions with which companies could analyze data and make decisions. In the next 30 years things didn’t change much, and the company, although it grew noticeably, seemed to stagnate in the last decade. And then something happened.
Let’s buy bitcoins. In August 2020, Saylor advertisement that his company would buy bitcoins as part of its strategy to have a capital reserve. At that time, he spent $250 million to buy 21,454 bitcoins, at a cost of $11,863 per bitcoin. Currently, one bitcoin is worth more than $97,000. That initial bet was just the beginning.
Let’s buy (many more) bitcoins. Since then, MicroStrategy has not stopped buying bitcoins, and in fact in recent weeks its commitment to this cryptocurrency has redoubled despite the fact that the price has reached all-time highs. Between November and December 2024, it has invested almost $100 billion to buy 171,430 bitcoins.
MicroStrategy has more bitcoins than the US (or China). As indicated in SherwoodMicroStrategy already has many more bitcoins than those the US and China have been acquiring. MicroStrategy currently has 423,650 bitcoins, while the US has 208,000 and China has 190,000 (although they could have more in hidden wallets). And they have no intention of stopping buying: in its last conference with investors, the company revealed its plans to raise $42 billion through stocks and bonds, and then use them to buy more bitcoins.
Source: Sherwood News
What is happening here? MicroStrategy is financing the purchase of bitcoins by issuing convertible bonds. These bonds allow creditors to convert their debt into equity at a specified future price, which among other things allows them to take advantage of lower interest rates. The last issue, for example, was at 0% interest. For example, if the stock price is $100, the company can issue convertible bonds with a conversion price of $130. If the stock rises to $200 before the bonds mature, investors can exchange their bonds for shares at $130 and sell them for $200, making a handsome profit.
A disturbing situation. This strategy allows you to buy more bitcoin without spending large amounts of cash immediately, but it raises a peculiar situation: the market value of the company ($85 billion) is very different from the value of its bitcoins ($41 billion). It is true that MicroStrategy continues to have income from its data mining and business intelligence software, but it does not even remotely cover the difference between both values. An analysis Three years ago Citrini Research described this MicroStrategy strategy as a “financial perpetual motion machine.” At least, as long as bitcoin continues to rise in value.
Impact on your actions. The company is benefiting from bitcoin price risewhich is also boosting the value of its shares. Evolution can be analyze on BitcoinTreasuries.netwhere you can see how since he started buying bitcoin, MicroStrategy shares have gone from being worth $12.36 to being worth $395.01. As long as bitcoin goes up, everything is great, but what happens if bitcoin falls noticeably in value?
The danger. If the price of bitcoin begins to decline steadily, MicroStrategy could face very serious problems. For starters, you would probably have to sell bitcoin to pay your creditors. That could start a negative cycle by impacting the price of bitcoin, lowering it further, and forcing more selling. The bull market is favoring the company, but there is a high risk if the value of bitcoin drops significantly.
Image | MicroStrategy | Erling Løken Andersen