Specialists point out that the great volatility of bitcoin could be detrimental to MicroStrategy.
It is essential that the company can meet its obligations to investors.
As CriptoNoticias has been reporting days ago, the shares of the American technology company MicroStrategy (MSTR) have set new all-time highs.
The company’s bitcoin (BTC) accumulation strategy drives the price of MSTR on the stock market. Please note that MicroStrategy It is the publicly traded company with the largest amount of BTC in its possession. At the time of this publication, accumulates 386,700 BTC, equivalent to more than 37,000 million dollars.
The following graph, provided by TradingViewallows you to see how MSTR has behaved throughout 2024:
Now… it’s worth asking how sustainable MicroStrategy’s strategy is. Please also note that this company even is going into debt to acquire more units of BTC.
The following graph shows all the bitcoin purchases that MicroStrategy has made and at what price they have been:
One of MicroStrategy’s most notable tactics has been the issuance of convertible bonds at 0% interest to finance massive bitcoin purchases. These bonds allow investors to lend money to the company interest-free, with the option to convert those bonds into shares if the share price exceeds a predetermined price. This move has been an integral part of its strategy to acquire more bitcoin, while potentially minimizing the direct cost of financing.
Analysts of the financial newsletter The Kobeissi Letter they explain that “the recent rise in MicroStrategy shares has nothing to do with its underlying business,” but rather is due to the exposure the company has to bitcoin. Therefore, they point out that the use of convertible bonds is riskydue to the inherent volatility of BTC.
As CriptoNoticias has reported, the company recently issued $3 billion in convertible bonds at a high exercise price, reflecting an optimistic bet.
A key question is why investors would opt for MicroStrategy convertible bonds instead of buying bitcoin directly. The answer may lie in accessibility and regulatory restrictions; Some institutional funds and pension plans could face limitations when purchasing “digital assets” directly. MicroStrategy offers an alternative, albeit indirect and possibly more expensive, route to gaining exposure to bitcoin.
For The Kobeissi Letter specialists, The viability of MicroStrategy’s strategy will depend largely on stability and continued growth of the bitcoin market. The company has benefited greatly from increases in the price of bitcoin, but any significant decline has the potential to jeopardize its ability to manage its debt and meet investor expectations.
«In summary, MicroStrategy’s strategy is based on cheap debt offerings: 1) Borrow money through 0% convertible bonds; 2) Buy bitcoin and increase the price; 3) Sell new shares at a premium and buy more bitcoin; 4) Repeat. How long can this cycle last?
The Kobeissi Letter, financial newsletter.
The Kobeissi Letter analysts do not deny that MicroStrategy’s strategy has captured the market’s attention. However, they highlight that it is enormously speculative and its success is inseparably linked to the fortune of bitcoin.
These specialists comment: «The bulls will argue that Saylor has transformed the business world and that all companies should start buying bitcoin. The bears will argue that this is a typical Ponzi scheme with an inevitable collapse when the capital runs out.
And then? Who will be right? According to The Kobeissi Letter, The continuity of this strategy will depend not only the market performance, but also of MicroStrategy’s ability to manage its complex financial structure in such a volatile environment.
Why is Michael Saylor so convinced of his strategy?
Michael Saylor, president of MicroStrategy, is known for his strong belief in the future of bitcoin.
Saylor believes that bitcoin is not only a financial asset superior to any other, but also an essential investment for any corporation seeking to preserve its long-term value in the face of inflation and other economic uncertainties.
According to statements collected by CriptoNoticias, Saylor has expressed on multiple occasions that he sees bitcoin as “the safest thing in a very uncertain world.”
This optimistic view on the future of bitcoin is what drives MicroStrategy’s strategy of aggressively accumulating bitcoin. Saylor mentioned that he sees bitcoin not only as a store of value, but also as an asset that could perform the function of “digital gold” in the economy of the future.
His strategy, although seen as risky by some analysts, is based on a long-term belief in the mass adoption of bitcoin and its establishment as a standard of value in the digital world. This businessman aims to position MicroStrategy in an advantageous place in a global financial system.
If Saylor’s bitcoin predictions are accurate, MicroStrategy’s strategy will likely position MSTR stock as an increasingly valuable asset.
In any case, it will be essential for the company to continue evaluating its financial position to ensure that it has the necessary liquidity to operate and meet its obligations. Financial resilience will help the company withstand any adverse market shocks and capitalize on emerging opportunities.
