Will MicroStrategy Continue Bitcoin Purchases as Lawsuit Looms?
Planned stock sale comes after Washington DC attorney general alleges tax fraud against company founder Michael Saylor
MicroStrategy’s Michael Saylor | Blockworks exclusive art by axel rangel
key takeaways
- MicroStrategy likely to continue “impractically large” bitcoin buys to attract crypto investors, Morningstar analyst says
- The largest blockchain-focused ETF in the US has kept the company’s stock as a top holding
MicroStrategy appears to be holding the line on its bitcoin acquisition strategy, with one analyst saying the company’s repeat buys are one way to attract crypto investors to the stock despite “tepid” growth in its software business.
The Virginia-based business intelligence company said in a filing Friday it would sell up to $500 million in new shares, stating that it intends to use the net proceeds “for general corporate purposes, including the acquisition of bitcoin.”
MicroStrategy did not return a request for comment.
Madeline Hume, a senior research analyst at Morningstar, told Blockworks that MicroStrategy’s use of a common equity listing to raise capital suggests the firm believes its shares are overvalued relative to bitcoin.
MicroStrategy’s stock closed at $262.98 Monday, up roughly 0.4% on the day. Bitcoin’s price was about $22,400, as of 4:00 pm ET, a 3.7% increase from 24 hours ago.
MicroStrategy executives said last month they no longer view buying bitcoin as just opportunistic, but rather a second corporate strategy alongside growing the company’s enterprise analytics business. MicroStrategy founder Michael Saylor stepped down from his CEO post at the time, becoming executive chairman.
“I wouldn’t argue that it’s a doubling down so much as a continued pattern of establishing brand recognition among crypto enthusiasts for buying impractically large amounts of bitcoin for its corporate treasury,” Hume said.
The filing came less than two weeks after the attorney general for Washington DC alleged Saylor illegally avoided paying more than $25 million of DC taxes — despite living there.
Filed in the Superior Court of the District of Columbia’s civil division, the complaint also claims MicroStrategy conspired to help him evade taxes. Saylor and his company could face $100 million in damages, according to the attorney general.
“Given that the lawsuit is not directly linked to the firm’s bitcoin treasury, amid the tepid growth of MicroStrategy’s core operating business as an enterprise software platform it’s not surprising that MicroStrategy continues to purchase bitcoin in the hopes of attracting cryptocurrency investors to the stock,” Hume said.
MicroStrategy suffered a net loss of nearly $1.1 billion during the second quarter, reflecting digital asset impairment charges of $918 million.
Allocations to MicroStrategy
MicroStrategy is viewed by many investors as a bitcoin proxy.
The business intelligence firm is the largest publicly traded owner of bitcoin (BTC). It held roughly 130,000 BTC — worth nearly $3 billion — as of June 30, the most recent available data.
The largest blockchain-focused ETF in the US, Amplify Investments’ Transformational Data Sharing ETF (BLOK), allocated about 4.8% of its portfolio to MicroStrategy, as of Monday — its second-highest holding behind Silvergate. The fund currently manages $580 million in assets.
“Management has made it clear that they would like to expand their ownership of bitcoin, and access to capital using equity right now provides the management team more flexibility,” said Dan Weiskopf, a co-portfolio manager of BLOK.
A total of 76 ETFs in the US own MicroStrategy stock, according to ETF.com.
The First Trust SkyBridge Crypto Industry and Digital Economy ETF (CRPT), which launched in September 2021 and has about $28 million assets under management, allocated about 14.4% of its portfolio to MicroStrategy, as of Sept. 9 — the highest weighting of any ETF.
In terms of the largest position by value, First Trust’s Cloud Computing ETF (SKYY) owned roughly $58 million worth of the company’s stock, as of Sept. 9 — a nearly 1.7% position in the $3.5 billion fund.
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