Bitcoin-salvo-a-microstrategy”>On the edge of the abyss. How Bitcoin saved MicroStrategy
According to Michael Saylor in a interview with DigitraCom from 2024MicroStrategy’s Bitcoin strategy began in 2020, at a time when the company He was between a rock and a hard place.
The company managed a treasury of $500 million in cash that yielded 0% interest, in the context of the COVID pandemic, which predicted great inflation. Their options were to find something that would generate interest on that reserve or return the money to the shareholders by buying back the shares. Doing the second would mean losing competitiveness in the labor market, losing employees and harming your business, even losing it. They also commented on this in their own talk. “MicroStrategy: The Case for Bitcoin on Corporate Balance Sheets”
They evaluated different options in which to put the capital and Saylor proposed Bitcoin to the board of directors. With the help of several partners they managed to launch the Bitcoin strategy, which later openly sharedsince it was something that no company of this type had done before. Saylor believes that The strategy had 4 stages: defensive, opportunistic, programmatic and strategic.
Bitcoin began as a defensive asset for the company because it is considered a commodity on the US stock market. Regulations only allow a listed company to put 40% of its liquid balance in securities (shares of other companies), but there is no such limit for property and commodities.
The second reason for putting your capital in Bitcoin was having understood that it would be the monetary network of the future and They would gain an advantage by entering before the other companies. The first purchase was with half the cash they had available: $250 million. They used the other half to offer shareholders the possibility of selling their shares to the company for a premium, so that those who were not comfortable with the direction the company was taking could leave on good terms.
The opportunistic strategy: infinite money glitch
While some investors sold their shares at the time, news of Bitcoin strategy attracted new investors and after the 20 days in which this buyback was in effect, the company ended up with an extra 175 million dollars, with which they bought more bitcoins.
Towards the end of 2020 the price of Bitcoin was on the rise, which drove MSTR stock higher as well, giving the company more cash to continue making purchases, at the same time the company Square started buying Bitcoin.
MicroStrategy then had the idea of issuing a convertible bond to raise more capital. This bond paid a very low interest (0.75% annually for five years), so the company was able to finance itself at little cost, and since it was convertible, shareholders could keep it in the form of company shares instead of receiving the interest. In the period in which that bonus was paid, Bitcoin rose almost 50% annually, so MicroStrategy was able to pay that interest without major inconveniences.
MicroStrategy executives understood that There is a market demanding volatility and MicroStrategy could offer it through convertible bonds. Therefore, it issued more bonds at 0 or almost 0% interest to buy more bitcoins, which were oversubscribed.
The programmatic strategy
During 2021 and 2022, MicroStrategy looked for a way to continue buying bitcoins during each quarter, using all possible means: using its cash flows from the software business, issuing more and different types of bonds, selling shares, and even asking for a loan to Silvergate bank, collateralized with your bitcoin reserve. They created the subsidiary MacroStrategy to carry out these operations.
This made MicroStrategy stock a leveraged Bitcoin position accessible to traditional financial markets before it ETFs will be approved. By purchasing a MicroStrategy share, an investor could not only have exposure to bitcoin in their portfolio, but leveraged exposure, obtaining a higher return than bitcoin.
By 2023 there was already paid the loanreleasing that collateral of bitcoins, which began to appear in financial reports as unencumbered.
MicroStrategy executives realized that their opportunity was to securitize bitcoin and thus be able to offer a product to several investor profiles at the same time. Investors who would like to put bitcoins in their portfolio, but cannot buy the asset directly or cannot buy an ETF, equities, or have to buy options, or debt. In this way, MicroStrategy’s action works as a bridge between traditional finance and the cryptoeconomy.
The difference between MicroStrategy and ETFs
In early 2024, the first Bitcoin exchange-traded funds (ETFs) were approved. As their name suggests, these are investment funds that buy bitcoins, and that can be subscribed directly from the stock exchanges. Some might think this would replace MicroStrategy stock as an instrument to access Bitcoin from institutional finance, but this is not so.
| MicroStrategy | Investment funds | |
| Corporate structure | Going concernActive control over capital structureNo management fee | Trust companyLimited control over capital structureManagement fee greater than zero |
| Ability to develop software | Ability to innovate to create added value | None |
| Ability to generate income in your operations | Reinvest cash flow from software business | None |
| Ability to leverage capital markets | Debt – Guaranteed or unsecured, Convertible or structured bonds, Equity, preferred shares | None |
MicroStrategy, «Q2 2024 Earnings Presentation” p. 21
As MicroStrategy executives explain, their position as an operating company allows them a leverage that investment funds do not have. In simple terms: investment funds follow the price of bitcoin 1:1. If a fund has USD 1,000,000 from investors, a share is USD 1 and the price of bitcoin is USD 100,000, the fund buys 10 bitcoins. If bitcoin rises to USD 110,000, each share of the fund will rise to USD 1.1 and the total fund will be USD 1,100,000. If 1 investor decides to withdraw from the fund and redeems 100,000 shares (worth USD 110,000), the total shares become USD 900,000 and the fund must sell 1 BTC to pay them, leaving a total of 9. That is, the fund It only acts as an intermediary in the purchase, sale and custody of bitcoins for participants.
Instead, MicroStrategy buys more bitcoins without the need for new investors to come in (or at least not directly). MicroStrategy calls this “BTC Yield”:
BTC Yield is a key performance indicator (“KPI”) that represents the period-to-period percentage change in the ratio between our bitcoin holdings and our assumed diluted outstanding Shares.
MicroStrategy, MicroStrategy, “Q3 2024 Earnings Presentation.” Page 43
The company projects to have a BTC return between 6% and 10% over the next 3 years. That is, the number of bitcoins increases 6-10% in relation to the number of shares in circulation. However, the last press release showed that it reached 38.7% quarterly and 63.3% year-on-year. In addition to this, he announced plan 42to raise USD 42,000,000,000 with which to buy more bitcoins from 2025 to 2027.
| Date | BTC | USD | BTC Price | Total Bitcoins | Total in dollars |
| 11/25/2024 | 55,500 | $5.4MM | $97,297.30 | 386,700 | $21.91 MM |
| 11/18/2024 | 51,780 | $4.6MM | $88,837.39 | 331,200 | $16.51 MM |
| 11/11/2024 | 27,200 | $2.0MM | $73,529.41 | 279,420 | $11.91 MM |
| 9/20/2024 | 7,420 | $458.2M | $61,752.02 | 252,220 | $9.91 MM |
| 9/13/2024 | 18,300 | $1.11 MM | $60,655.74 | 244,800 | $9.45 MM |
| 08/01/2024 | 169 | $11.4M | $67,455.62 | 226,500 | $8.34 MM |
| 6/20/2024 | 11,931 | $786.0M | $65,878.80 | 226,331 | $8.33 MM |
| 4/1/2024 – 5/1/2024 | 164 | $7.8M | $47,560.98 | 214,400 | $7,538 MM |
| 03/19/2024 | 9,245 | $623.0M | $67,387.78 | 214,246 | $7.53 MM |
| 03/11/2024 | 12,000 | $821.7M | $68,475.00 | 205,000 | $6.91 MM |
| 02/26/2024 | 3,000 | $155.0M | $51,666.67 | 193,000 | $6.09 MM |
| 02/06/2024 | 850 | $37.2M | $43,764.71 | 190,000 | $5.93 MM |
| 12/27/2023 | 14,620 | $615.7M | $42,113.54 | 189,150 | $5.90 MM |
| 11/30/2023 | 16,130 | $593.3M | $36,782.39 | 174,530 | $5.28 MM |
| 11/01/2023 | 155 | $5.3M | $34,193.55 | 158,400 | $4.69 MM |
| 09/24/2023 | 5,445 | $147.3M | $27,052.34 | 158,245 | $4.68 MM |
| 07/01/2023 – 07/31/2023 | 467 | $14.4M | $30,835.12 | 152,800 | $4.53 MM |
| 04/29/2023 – 06/27/2023 | 12,333 | $347M | $28,135.90 | 152,333 | $4,517 MM |
| 04/05/2023 | 1,045 | $29.30M | $28,038.28 | 140,000 | $4,170 MM |
| 03/27/2023 | 6,455 | $150.00M | $23,237.80 | 138,955 | $4,140 MM |
| 12/24/2022 | 810 | $13.65M | $16,851.85 | 132,500 | $4,027 MM |
| 12/22/2022 | -704 | $11.8M | $-16,761.36 | 131,690 | $4,012 MM |
| 11/01/2021 – 12/21/2022 | 2,395 | $42.8M | $17,870.56 | 132,395 | $4,024 MM |
| 9/20/2022 | 301 | $6M | $19,933.55 | 130,000 | $3,981 MM |
| 6/28/2022 | 480 | $10M | $20,833.33 | 129,699 | $3,975 MM |
| 02/15/2022 – 04/05/2022 | 4,167 | $190M | $45,596.35 | 129,218 | $3,965 MM |
| 01/01/2022 – 01/31/2022 | 660 | $25M | $37,878.79 | 125,051 | $3,775 MM |
| 12/30/2021 | 1,914 | $94.2M | $49,216.30 | 124,391 | $3,750 MM |
| 11/29/2021 – 12/08/2021 | 1,434 | $82.4M | $57,461.65 | 122,478 | $3,655 MM |
| 11/28/2021 | 7,002 | $414M | $59,125.96 | 121,044 | $3,573 MM |
| 09/13/2021 | 8,957 | $419M | $46,779.06 | 114,042 | $3,159 MM |
| 06/21/2021 | 13,005 | $249M | $19,146.48 | 105,085 | $2,740 MM |
| 05/18/2021 | 229 | $10M | $43,668.12 | 92,079 | $2,251 MM |
| 05/13/2021 | 271 | $15M | $55,350.55 | 91,850 | $2,241 MM |
| 04/05/2021 | 253 | $15M | $59,288.54 | 91,579 | $2,226 MM |
| 03/12/2021 | 262 | $15M | $57,251.91 | 91,326 | $2,211 MM |
| 03/05/2021 | 205 | $10M | $48,780.49 | 91,064 | $2,196 MM |
| 03/01/2021 | 328 | $15M | $45,731.71 | 90,859 | $2,186 MM |
| 02/24/2021 | 19,452 | $1,026 MM | $52,745.22 | 90,531 | $2,171 MM |
| 02/02/2021 | 295 | $10M | $33,898.31 | 71,079 | $1,145 MM |
| 01/22/2021 | 314 | $10M | $31,847.13 | 70,784 | $1,135 MM |
| 12/21/2020 | 29,646 | $650M | $21,925.39 | 70,470 | $1,125 MM |
| 04/12/2020 | 2,574 | $50M | $19,425.02 | 40,824 | $475M |
| 09/14/2020 | 16,796 | $175M | $10,419.15 | 38,250 | $425M |
| 08/11/2020 | 21,454 | $250M | $11,652.84 | 21,454 | $250M |
MicroStrategy Bitcoin purchase history from 08/11/2020 to 11/25/2024. Fountain: Bitcoin Treasuries.
Disclaimer: The views and opinions expressed in this article belong to its author and do not necessarily reflect those of CriptoNoticias. The author’s opinion is for informational purposes and under no circumstances constitutes an investment recommendation or financial advice.
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