Will MicroStrategy ever stop buying bitcoin?

MicroStrategy now owns roughly 0.75% of bitcoins in circulation and has shown no intention of slowing down its purchases.

The company’s bitcoin (BTC) buy-and-hold strategy isn’t exactly risk-free, one analyst said — though another industry watcher said the company is likely to only stop, and perhaps sell, if absolutely necessary.

MicroStrategy owns 152,800 BTC — bought for $4.53 billion, or $29,672 per bitcoin. Its holdings have steadily ticked upwards, with the company buying in bull and bear markets alike.

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

The company did not immediately return a request for comment.

No end in sight

The business intelligence software company run by bitcoin bull Michael Saylor kicked off its bitcoin acquisition strategy in August 2020.

It more recently bought 12,333 BTC for $347 million between April 29 and June 27 — its largest acquisition since June 2021. It then added 467 BTC to its stash in July.

Executives have been clear on earnings calls that the company plans to continue accumulating BTC over time using excess cash and net proceeds of capital markets transactions, including issuing convertible notes.

Matthew Weller, global head of research at StoneX, said the company has become well-known for its “hybrid corporate strategy” of converting profits from its core software intelligence business into BTC — an asset it views as a superior store of value.

“Having already gone so far along this path, it’s hard to see MicroStrategy stopping its bitcoin buying spree with any excess cash the operating company generates,” Weller told Blockworks.

Vitanza said he expects the firm to limit buys to when market conditions are attractive — based upon the price of BTC and the price at which MicroStrategy can issue securities, either debt or equity.

The firm’s stock price was $377.84 through Wednesday’s close — up 160% on the year. The price of BTC was $29,390 at that time, a 77% increase from the start of 2023.

MicroStrategy’s bitcoin buys are very much dependent on the relationship between those both prices, Vitanza argued.

“I am confident that the company has a model that is very specific and that has that algorithm plugged in.” Vitanza said. “It’s not as though they’re just sitting there waking up in the morning saying, ‘Hey, you know what, the stock’s at $390 and bitcoin’s at $30,000’ — it feels like a good mix.”

MicroStrategy indicated in an August 1 filing that it had entered into a sales agreement with Cowen and Company, Canaccord Genuity and Berenberg Capital Markets to sell up to $750 million of stock with one or more of those entities.

On an earning call last week, Chief Financial Officer Andrew Kang said MicroStrategy could use the proceeds for “general corporate purposes,” including to buy more bitcoin, or to repurchase or repay its outstanding debt.

Kang noted the company terminated its prior $625 million at-the-market (ATM) equity offering — of which about $290 million of capacity remained — to replace it with the $750 million facility.

“They looked at it and said $290 million isn’t enough, so that tells us something,” Vitanze said. “I would have expected that they would have continued to use the old facility until it was closer to zero. But the fact that they [wanted] to blow this thing up to a bigger size makes me think they are buying in the near term, or they were.”

Berenberg Capital Markets analysts said in an August 1 research note that they expect MicroStrategy to hold 156,800 BTC — 4,000 BTC more than it does now — by April 2024.

What are the risks, and when could they sell?

MicroStrategy is not buying bitcoin based on six month price projections, Vitanza said.

The strategy, rather, he said, is based on the idea that over many years bitcoin will become an increasingly accepted form of money while fiat currencies continue to devalue.

“I don’t think they will sell it just to recognize gain,” Vitanza said. “Because what are they going to do with the money? They’re going to put it into a fiat currency, which is then going to be devalued at 10% per year.”

MicroStrategy would only sell bitcoin if they are in need of operational capital, to pay taxes or pay off dollar-denominated debt, the TD Cowen research managing director said. The company’s outstanding debt and convertible notes amount to $2.2 billion.

About half of that is set to come due as early as 2025, Vitanza said.

“If the financing markets are awful and the company has no cash, then they might be in a position that they’re forced to sell bitcoin to generate the dollars that they need to pay off their debt,” he said. “That’s unlikely, in my opinion, but I think that’s kind of the only scenario.”

In terms of risks for MicroStrategy, buying too much bitcoin is not one of them, Vitanza said. But buying bitcoin in a way that investors don’t deem prudent could cause some to look to other vehicles to gain bitcoin exposure.

Another such way could be via a spot bitcoin ETF — a product the Securities and Exchange Commission has not yet allowed to come to market, but that some believe could launch in the coming months after filings by BlackRock, Fidelity and others.

Weller said the prospect of such a fund hitting the market after about a decade of attempts from a range of issuers could pose a “big risk” for MicroStrategy.

“Many investors buy MicroStrategy stock as a widely available proxy to get exposure to Bitcoin,” he said. “But if a simple, low-fee alternative emerges, much of the current demand for the stock may dry up, leaving the highly-valued, slow-growing operating company to manage an unwieldy volatile balance sheet.”

A spot bitcoin ETF, if approved, “won’t offer the same kind of leverage yield that MicroStrategy offers,” Saylor said during the company’s August 1 earnings call.

A portion of institutional investors, however, will opt for a bitcoin ETF to get involved in the space, he acknowledged.

“MicroStrategy wouldn’t be the right option for them because they really just need to be able to buy an unlimited amount of bitcoin, without worrying about not tracking the bitcoin price and with clarity and transparency,” Saylor said. “So I think that will expand the pie…and MicroStrategy is going to continue to be thoughtful and responsible about managing our business in order to find ways to get incremental bitcoin for our investors.”

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