Michael Saylor, the founder of MicroStrategy, has become one of Bitcoin’s most vocal advocates, boldly proclaiming, “There is no second best.”
Since 2020, Saylor has leveraged his publicly traded company to amass over $14 billion in paper profits by buying more than $30 billion worth of Bitcoin, positioning MicroStrategy as the largest corporate holder of the cryptocurrency. It’s a strategy that has drawn admiration from Bitcoin maximalists and skepticism from traditional investors alike.
But as MicroStrategy continues to raise billions in capital — targeting $42 billion in new funding over the next three years — to quadruple down on its Bitcoin bet, concerns are mounting. Could this be the makings of another massive bubble? And if Bitcoin’s price falters, how will MicroStrategy’s bold play end?
MicroStrategy’s Bitcoin strategy has parallels to one of crypto’s most infamous trades: the “GBTC Premium Trade.” At its height, this arbitrage opportunity allowed investors to leverage Bitcoin exposure through Grayscale’s Bitcoin Trust (GBTC), which traded at a premium to its underlying Bitcoin holdings. Many investors took out loans to exchange that money for GBTC shares and pocketed profits from the premium after a lockup period.
The trade unraveled spectacularly in 2021 when the GBTC premium flipped to a discount. Firms like Three Arrows Capital and BlockFi, which had leveraged themselves heavily or exposed themselves to people who had levered up, imploded. The ensuing wave of bankruptcies, including Genesis, highlighted the dangers of building financial strategies on fragile market inefficiencies.
Today, critics warn that MicroStrategy is walking a similar tightrope. But instead of leveraging GBTC’s premium, MicroStrategy is opening a new path to levered bets on Bitcoin using its own stock and bonds — essentially turning the company into a Bitcoin proxy with added leverage.
MicroStrategy’s strategy hinges on raising capital through convertible bonds and equity offerings. Here’s how it works:
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Borrow at Low Rates (0%) – MicroStrategy offers bondholders minimal or zero interest rates.
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Offer Stock Upside – Instead of interest, bondholders are allowed to convert their bonds into MicroStrategy shares if the stock price rises. This potential upside has attracted major institutional players, including Allianz, Germany’s largest insurer.
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Buy More Bitcoin – The capital raised is then funneled into additional Bitcoin purchases, fueling further stock price gains.
This feedback loop has propelled MicroStrategy’s stock to staggering heights, climbing nearly 500% in 2024 alone. The strategy has been so effective that bond investors have lent the company billions at 0%, lured by the potential to convert bonds into shares worth more.
