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Microstrategy owns 92,079 Bitcoins.
Dreamstime.com
Bitcoin’s recent weakness may have scared some companies away from acquiring more, but one company seems more bullish than ever.
The business-software firm
Microstrategy
(ticker: MSTR) said on Monday that it will sell $400 million worth of bonds to institutional investors and use the proceeds to buy more Bitcoin. It is the first time a corporation has issued speculative-grade bonds to fund a Bitcoin purchase, according to Bloomberg.
Microstrategy already owns 92,079 Bitcoins, worth more than $3 billion at current prices. Bitcoin was trading at $35,800 on Monday.
Microstrategy’s purchases come even as the firm also said in a separate securities filing that it will have to write down the value of its assets by at least $284.5 million in the upcoming quarter because of the drop in Bitcoin’s price. Bitcoin-related operating losses have already had a large impact on Microstrategy’s results.
In its latest quarter, the company reported a $194.1 million impairment, leading to an overall operating loss of $183.2 million. Microstrategy writes its assets down to the lowest level that Bitcoin hits during the quarter. During the latest washout, the price fell to $30,200.
Others appear to have been deterred from dabbling in crypto, at least for the time being. Tesla (TSLA), which had bought some Bitcoin in the first quarter, later sold some of its holdings and reversed a decision to accept it as payment for its vehicles.
That said, Microstrategy still appears to have made a paper gain on its Bitcoin holdings, given that the company said on its latest earnings call that it had accumulated its current holdings of Bitcoin at an average price of $24,214. It will create a subsidiary called Macrostrategy to hold the Bitcoin.
Outside of a few crypto-focused companies like
Riot Blockchain
(RIOT), Microstrategy appears to be the most Bitcoin-connected corporation in the U.S. It was a sleepy Virginia-based software firm until last year, when CEO
Michael Saylor
became enamored of Bitcoin. He bought some for himself and then began advocating for purchases by the company. At the time, he explained to Barron’s in an interview that he thinks Bitcoin will only become more popular as inflation accelerates.
As Microstrategy began to buy Bitcoin, and the price of the crypto rose, the company’s market capitalization ballooned from $1 billion to more than $10 billion earlier this year. It has since retreated to about $4.6 billion.
Microstrategy has already issued nearly $1 billion worth of convertible bonds to buy Bitcoin. Analysts say that the strategy adds new risks to the stock, but some have warmed to it, in part because it gives the company a unique selling point for investors. BTIG analyst Mark Palmer called it “a rational action aimed at protecting the company’s inherent value in the long run.” That said, he notes that Microstrategy could be hurt if it becomes easier for investors to buy Bitcoin directly, through a U.S. listed ETF for instance.
There may be another play here too. The company says its Bitcoin-related notoriety appears to be helping it attract new software clients.
“The increased visibility and thought leadership from our Bitcoin acquisition strategy is driving an increase in inbound software leads,” said CFO Phong Le on the company’s latest earnings call.
Write to editors@barrons.com
