MicroStrategy (NASDAQ:MSTR) just made another bold move, announcing plans to redeem all $1.05 billion of its 0% convertible senior notes due in 2027. Investors holding these notes have until February 20, 2025, to convert them into shares at $142.38 eachotherwise, MicroStrategy will pay back the full principal on February 24. This comes as the company continues its relentless Bitcoin buying spree, now holding 461,000 BTC worth around $48.65 billion. Its latest zero-interest convertible bond issuance raised $3 billion, reinforcing its high-risk, high-reward approach to leveraging Bitcoin as a corporate treasury asset.
But there’s a potential storm brewing. Reports indicate that MicroStrategy could face a massive $2.9 billion federal tax bill on its unrealized Bitcoin gains under the Inflation Reduction Act. While this proposal isn’t yet law, it’s enough to keep investors on edge. Meanwhile, MicroStrategy is gearing up for an ambitious $42 billion capital raise, with shareholders approving a 30x increase in authorized Class A shares. The stock has been volatile, reflecting investor uncertainty over dilution risks and looming tax liabilities.
Despite the risks, big money isn’t backing away. Heavyweights like Allianz Global Investors and State Street are snapping up MicroStrategy’s zero-coupon convertible bonds, seeing them as a smarter way to bet on Bitcoin without full exposure to its volatility. Hedge funds are also using these bonds in convertible arbitrage plays, cashing in on the stock’s wild swings. But skeptics warn that MicroStrategy’s aggressive strategy has eerie echoes of past speculative bubbles like Enron and WorldCom. With Bitcoin soaring and MicroStrategy doubling down, the real question is: how long can this game last before the risks catch up?
This article first appeared on GuruFocus.
