MicroStrategy, a Bitcoin development company, has made another significant investment in Bitcoin by purchasing 11,931 BTC. This brings their total holdings to 226,331 coins. The purchase, valued at $786 million, was financed through a recent convertible debt offering that raised $800 million and closed on June 18. Each coin was bought at an average price of $65,883.
MicroStrategy’s convertible bonds have been successful, with investors accepting the minimum 2.25% annual yield offered by the company. Alternatively, investors have the option to convert their investments into MSTR stock at a rate of $2,043.32 per share, which is approximately 35% above the current market price. This option is available if the stock’s value rises above this figure before the bonds expire on June 15, 2032. It essentially functions as a call option on MSTR stock for bond investors, providing the minimum guarantee of getting their money back plus a small yield if things don’t go as planned.
Earlier this month, MicroStrategy issued a notice of redemption on its first round of convertible bonds issued in December 2020. Given the significant increase in MSTR’s value above the predetermined conversion rate, investors are expected to convert their shares before July 11, which could result in significant dilution for MSTR shares.
The price of MSTR has been closely tied to the price of Bitcoin in recent years. Experts have described the stock as a “leveraged play on Bitcoin prices,” with its price typically moving 1.5 times more than the cryptocurrency’s volatility. MicroStrategy has converted nearly all of its balance sheet into BTC, and the coins on its balance sheet are now valued at $14.7 billion. Prior to the latest purchase, the company had unrealized profits of 83.7% ($6.3 billion) on its entire Bitcoin stack.
MicroStrategy’s executive chairman, Michael Saylor, has positioned the company as a Bitcoin ETF with added benefits, such as the use of moderate leverage and no management fee. However, critics argue that the company is overvalued compared to typical Bitcoin ETFs, as its market capitalization of $26 billion is almost twice the size of its Bitcoin assets under management.
Other companies, like Japanese public firm MetaPlanet, have started to follow MicroStrategy’s lead in leveraging capital markets to purchase more Bitcoin (BTC).
