MicroStrategy Acquires 55,500 BTC for $5.4 Billion in November
Business intelligence firm MicroStrategy has increased its Bitcoin (BTC) purchases this month, responding to bullish sentiment following President-elect Donald Trump's victory on November 5. The company's total Bitcoin holdings have reached approximately $38 billion.
Convertible Notes Fuel Massive Bitcoin Purchase
On November 25, co-founder Michael Saylor announced that MicroStrategy acquired 55,500 BTC between November 18 and November 24 for $5.4 billion. This purchase was funded by proceeds from a $3 billion convertible note issuance and sales of common shares, as detailed in a filing with the US Securities and Exchange Commission (SEC).
Since starting its Bitcoin acquisition strategy in 2020, Saylor has shifted from using corporate cash to a funding model involving selling convertible debt and shares. The latest convertible note was issued at a zero percent interest rate, indicating lenders' confidence in future stock appreciation beyond the conversion price.
Jeffrey Park, a portfolio manager at Bitwise Asset Management, noted that Saylor has effectively leveraged financial arbitrage within the corporate treasury structure, allowing MicroStrategy to borrow funds at virtually no cost. Saylor revealed that MicroStrategy's treasury operations have generated a substantial 59.3% in Bitcoin returns year-to-date, translating to a net gain of approximately 112,125 BTC for shareholders, or about 341 BTC per day. At a projected price of $100,000 per BTC, this could result in $11.2 billion for the year, equating to roughly $34.1 million daily.
Analyst Warns Of Risks In Leverage Strategy
MicroStrategy has acquired a total of 386,700 tokens, with an average purchase price lower than its current market value. The latest acquisitions occurred while Bitcoin prices were nearing all-time highs, with the company purchasing new tokens at approximately $97,862 each, slightly above their current trading price.
This leveraged strategy has raised concerns among analysts, especially after MicroStrategy’s shares (MSTR) fell by 16% last Thursday. Critics warn that a sharp decline in Bitcoin's price could negatively impact the company's stock, recalling the downturn in 2022 when the cryptocurrency market experienced significant losses.
TD Cowen analyst Lance Vitanza highlighted the risks associated with leverage, stating that applying leverage amplifies returns both positively and negatively. He emphasized that MicroStrategy is pioneering this leverage strategy specifically for Bitcoin.
At the time of writing, Bitcoin is trading at $95,350, reflecting a price decrease of 1.7% in the past 24 hours.
Featured image from DALL-E, chart from TradingView.com.