What the hell is MicroStrategy up to?
MicroStrategy is offering $500 million of bonds to investors to acquire more Bitcoin. Source
This is all good for Bitcoin. I mean a company that keeps buying millions of dollars worth of Bitcoin to HODL will take liquid bitcoin supply away from the market. The news failed to have a positive impact on price yesterday or today, as technicals remain negative.
At bitcoin’s current price of $36,116 at the time of writing, Microstrategy’s $400 million would acquire over 11,075 BTC. That means the company’s cryptocurrency stash would grow to more than 103,154 bitcoins. Source
Hopefully, he also has a trading desk or traders on the board that will help him buy lower, as Bitcoin is likely to fall below $30k.
While the news is great for Bitcoin and I am happy about that, what on earth is this company doing? It is a listed company, that is issuing debt, not to grow its business, but to speculate on a trading asset. I do believe that bitcoin will trade much higher from current levels sometime in the future. Therefore, MicroStrategy's decision to acquire bitcoin will make Michael Saylor look like the most bad-ass genius CEO in the world. I also understand why it may make sense for MicroStrategy. The company had zero debt prior to its Bitcoin buying spree. It generates enough cash to service current and additional debt. Also, in all likelihood, the company will make tons of money on its Bitcoin position.
However, Microstrategy as a company is not a trading desk. I am sure treasury departments in a few companies run a small speculative book. However, it will be diversified and will never overtake the actual business of the company. MicroStrategy generates about half a billion dollars in revenue. If the new bond issuance is complete, the total long-term debt of the company will be $2 billion.
I have not heard of any other company that is not part of the banking or finance industry, taking on leverage to buy a speculative asset that has nothing to do with their business. Real Estate companies acquire land banks, banks speculate with borrowed money but what is MicroStrategy doing as a company.
It is advised to everyone new to crypto - buy only as much as you can afford to lose. Don't leverage your house to buy Bitcoin. I kind of feel that Microstrategy has entered into this territory of betting the house on Bitcoin. Investing excess cash into what the CEO considers to be a better store of value is fine. However, the store of value argument does not hold when one is borrowing money. If you don't borrow money, you won't have the need for a store of value. What is happening now is speculation and it does not feel right.
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