Will MicroStrategy Stop Buying Bitcoin?

Author: BEN STRACK, BlockWorks; Compiler: Songxue, Jinse Finance

**MicroStrategy currently holds approximately 0.75% of Bitcoin in circulation and has shown no intention of slowing down its purchases. **

The company's bitcoin (BTC) buy-and-hold strategy isn't entirely risk-free, one analyst said, but another industry watcher said the company would likely stop buying only if absolutely necessary, and could even sell .

MicroStrategy owns 152,800 BTC at a purchase price of $4.53 billion, or $29,672 per bitcoin. The company's holdings have steadily risen, and the company is buying in both bull and bear markets.

"I don't think they're going to stop," said Lance Vitanza, managing director of equity research at TD Cowen.

no end in sight

The business intelligence software company run by Bitcoin guru Michael Saylor launched a Bitcoin acquisition strategy in August 2020.

Most recently, the firm bought 12,333 bitcoins for $347 million between April 29 and June 27, the largest purchase since June 2021. The company then bought another 467 bitcoins in July.

**Executives made it clear on the earnings call that the company plans to continue accumulating bitcoin over time using excess cash and the net proceeds of capital market transactions, including the issuance of convertible notes. **

Matthew Weller, global head of research at StoneX, said the company is known for its "hybrid enterprise strategy" of converting profits from its core software intelligence business into BTC, which the company sees as a superior store of value assets.

“Now that it’s gotten so far down this road, it’s hard to see MicroStrategy stopping its bitcoin buying spree,” Weller said.

Vitanza said he expects the company to limit purchases of bitcoin when market conditions are attractive, based on the price of BTC and the price of securities (debt or equity) issued by MicroStrategy.

As of Wednesday's close, the company's shares were trading at $377.84, up 160% from a year ago. At that time, the price of BTC was $29,390, a 77% increase from the beginning of 2023.

According to Vitanza, MicroStrategy’s bitcoin volume purchases largely depend on the relationship between these two prices.

"I believe the company has a very specific model that plugs into that algorithm," Vitanza said. “It’s not like they just wake up in the morning and sit there and say, ‘Hey, you know what, stocks are at $390 and bitcoin is at $30,000’ — it feels like a good combination.”

In an Aug. 1 filing, MicroStrategy said it had entered into sales agreements with Cowen and Company, Canaccord Genuity and Berenberg Capital Markets to sell up to $750 million in stock to one or more of these entities.

During last week's earnings call, Chief Financial Officer Andrew Kang said **MicroStrategy could use the proceeds for "general corporate purposes," including buying more bitcoin, or repurchasing or paying off its outstanding debt. **

Kang noted that the company terminated a previous $625 million at-the-market (ATM) equity offering, of which about $290 million in capacity remained, and replaced it with a $750 million facility.

"They looked at it and said $290 million wasn't enough, so that tells us something," Vitanza said. "I thought they would keep using the old facility until it was close to zero. But the fact that they [want to] scale this thing up to something bigger makes me think they'll be buying in the short term, or they are."

Analysts at Berenberg Capital Markets said in a research note on Aug. 1 that they** expect MicroStrategy to hold 156,800 BTC by April 2024, 4,000 BTC more than it does now. **

**What are the risks and when can it be sold? **

Vitanza said MicroStrategy would not be buying Bitcoin based on a six-month price forecast.

Instead, he said, the strategy is based on the idea that over the years, bitcoin will become an increasingly accepted form of money while fiat currencies continue to lose value. **

"I don't think they're going to sell it just to recognize the gain," Vitanza said. "Because what are they going to do with that money? They're going to convert it into fiat currency, and then fiat currency is going to depreciate at 10% a year."

The managing director of research at TD Cowen said that MicroStrategy will only sell bitcoin when it needs working capital, tax payments or repayment of dollar-denominated debt. The company's outstanding debt and convertible notes total $2.2 billion.

Vitanza said about half of those will expire as early as 2025.

“If the funding market is bad and companies don’t have cash, then they may be forced to sell bitcoin to generate the dollars they need to pay off their debt,” he said. "In my opinion, it's unlikely, but I think it's the only case."

**As far as MicroStrategy’s risks are concerned, buying too much bitcoin is not one of them, Vitanza said. But buying bitcoin in a way that investors see as imprudent may lead some to seek other vehicles to gain exposure to bitcoin. **

Another way could be through a spot bitcoin ETF – the SEC has not yet allowed the product to go public, but some believe that after filings from BlackRock, Fidelity, etc. It may be launched in the next few months.

After about a decade of trying by a series of issuers, the prospect of such a fund going public could pose "substantial risk" for MicroStrategy, Weller said.

"A lot of investors bought MicroStrategy stock to get bitcoin investment," he said. "But if a simple, low-fee alternative emerges, much of the current investor demand for it could dry up, leaving the highly valued, slow-growing operating company with unwieldy and volatile assets to manage Balance Sheet."

**Saylor said on the firm's Aug. 1 earnings call that a spot bitcoin ETF, if approved, "would not offer the same leveraged yield" as MicroStrategy. **

However, he admitted that some institutional investors will choose bitcoin ETFs to get involved in this field.

“MicroStrategy wasn’t the right choice for them because they really just needed to be able to buy an unlimited amount of bitcoin without worrying about not being able to track the bitcoin price, and with clarity,” Thaler said. "So I think that's going to expand the pie...MicroStrategy will continue to manage our business thoughtfully and responsibly in order to find ways to acquire incremental bitcoin for our investors."