MicroStrategy’s Bitcoin Triumph Threatens ETFs — But May SEC Approval Halt Its Ascendancy?
Major institutional investors have piled into MSTR capitalizing on its aggressive Bitcoin acquisition strategy. (Credit: Shutterstock)
Key Takeaways
- Michael Saylor’s strategy entails Microstrategy relying on Bitcoin for capital, rather than cash.
- The company’s core product is not influenced by Bitcoin pricing.
- Microstrategy’s Bitcoin purchase rate may lead to better returns compared to potential future ETFs.
Microstrategy now holds over 0.75% of the entirety of the Bitcoin token pool. Following its CEO’s strategy, the company has been consistently acquiring large sums of Bitcoin to secure the company’s financial position and hedging its future on the potential increase in the token’s value in the future.
Microstrategy is currently one of the biggest Bitcoin holders in the world, which, by default, makes it one of the few publicly traded major holders of the token.
MSTR, Microstrategy’s publicly traded stock share, is now one of the most convenient ways for investors to expose themselves to Bitcoin investments without the need to hold the actual token in personal wallets.
Saylor And Microstrategy Bet Big On Bitcoin
According to Satoshi Nakamoto’s plan, the total Bitcoin pool will consist of 21 million tokens. At 158,245 coins, Microstrategy now owns over 0.75% of all Bitcoin that there will ever be.
Saylor, the company’s CEO, has been a vocal supporter of Bitcoin, referring to it as “digital gold” and highlighting its function as a strategic treasury reserve asset.
With this most recent acquisition, MicroStrategy has solidified its place as one of the leading institutional investors in Bitcoin. He even maintained the stance that Bitcoin is ‘underestimated’ .
The company and its CEO’s Bitcoin-based trajectory has caused many analysts and investors to investigate whether the new approach to finance is actually viable.
Many speculate that Saylor and Microstrategy are trying to fill up their Bitcoin vaults as much as possible ahead of the next Bitcoin halving set for 2024.
Berenberg Capital Markets, a New York-based investment company with a $430 price objective for MicroStrategy (MSTR) says “[It] is our expectation that the price of Bitcoin will repeat its historical pattern of rallying both ahead of and following each Bitcoin halving.”
“If the historical pattern established by the first three bitcoin halvings continues to play out with the fourth halving, then the pre-halving rally would begin about four months from now.”
Microstrategy Holds At a Loss
The average price of the company’s 158,245 Bitcoin pool is around $29,582 per token. While Bitcoin, at the time of writing, trades at around $28,000. Granted, the crypto token has risen significantly from the $26,000 mark it was at in the past few weeks.
However, simple math suggests that Microstrategy’s total Bitcoin holding now practically holds less value, causing unrealized losses.
But, if Saylor’s strategy and prediction for Bitcoin come to fruition, and Bitcoin truly rises past $30,000, the company is set to reap the benefits of a successful 3-year-long plan.
MSTR
While the crypto industry eagerly awaits the approval of spot ETF applications from firms like BlackRock and Ark Invest, companies such as Microstrategy and Grayscale have taken a proactive approach, attracting investor capital by offering exposure to Bitcoin through their company stocks.
Grayscale, despite awaiting ETF approval, continues to offer the Grayscale Bitcoin Trust as a means for investors to participate in the crypto market.
Microstrategy has taken a similar path with its MSTR stock trading.
The objective is to provide cost-effective access to Bitcoin investments. With the price of a single Bitcoin exceeding $28,000, many investors are seeking alternative ways to gain exposure to Bitcoin through stock offerings.
According to reports , Microstrategy’s “outstanding debt and convertible notes of $2.2 billion have a bundled weighted average interest rate of approximately 1.6%, according to the company. This is compared to the blended weighted average interest rate of 2.1% at the end of 2022, which equates to a decrease of over $15 million in annualized interest expense.”
The fact is that the company is using low-interest loans to finance more Bitcoin purchases, further pushing the company’s dominance in the Bitcoin space.
Microstrategy’s Core Business
Microstrategy, a software solutions company with nearly 2000 employees, including engineering teams, boasts a substantial clientele featuring brands like Hilton Hotels and Sony Interactive Entertainment. It maintains predictable annual revenues, with sales figures of $499.3 million in 2022, $510.8 million in 2021, $480.7 million in 2020, and $486.3 million in 2019. Analysts anticipate earnings of $500.7 million this year
Moreover, Microstrategy MSTR focuses on transitioning its business intelligence customers to the cloud, shifting from product licenses to subscription-based revenue generation. This strategy has been successful, reflected in high renewal rates. Andrew Kang, Senior Executive Vice President, and Chief Financial Officer highlighted customer renewal rates of 93% for the quarter and consistently above 90% for six consecutive quarters, demonstrating the durability of their customer base.
Finally, MSTR also plans on launching the MicroStrategy Lightning, which aims to leverage on the Bitcoin network to enable new e-commerce use cases and tackle cybersecurity challenges.
