The Impressive Numbers Behind MicroStrategy’s Bitcoin Holdings
MicroStrategy, a software company turned de facto Bitcoin hedge fund, has made a multibillion-dollar bet on the cryptocurrency. Since 2020, the company has spent almost $23.5 billion buying Bitcoin, now holding more than 400,000 BTC, or around 2% of Bitcoin’s total supply. According to data from the MSTR tracker, MicroStrategy’s Bitcoin treasury is worth over $40 billion, notching unrealized profits of about $16.5 billion – a more than 70% return on invested capital.
A Virtuous Cycle
The virtuous cycle that has sent MicroStrategy’s shares skyward will eventually reverse course. Investors have effectively paid the company to accumulate BTC by issuing richly valued stock and borrowing for almost nothing. This strategy has triggered a cycle, sending MicroStrategy’s stock, MSTR, ever higher.
Copycats at Risk of Similar Fates
Since August, exchange-traded funds (ETFs) offering leveraged exposure to MSTR have bootstrapped more than $4.5 billion in assets under management (AUM). Meanwhile, other companies are following MicroStrategy’s lead, including drugmaker Hoth Therapeutics, artificial intelligence developer Genius Group, and YouTube alternative Rumble.
Corporate Treasuries: Inflation Hedges or Overvalued Assets?
Corporate treasuries hold more than $52 billion in BTC as of Dec. 7, according to Bitcointreasuries.net. While corporate treasuries are inflation hedges, they don’t justify lofty stock premiums. The cycle that sent MicroStrategy’s shares skyward will eventually reverse course.
A Doubled-Down Approach
MicroStrategy is doubling down on its Bitcoin strategy. In August, the company committed to a unique performance metric: Bitcoin yield, which measures the ratio of BTC holdings to outstanding shares. It sets BTC-per-share as a lodestar for corporate performance. MicroStrategy has unveiled plans to raise $21 billion in equity and another $21 billion in debt to finance more BTC buying under the 21/21 Plan.
Bracing for an Unraveling
In November, MicroStrategy raised $3 billion from convertible notes to finance more BTC buying. The deal terms sparkled: at 0% APR, MicroStrategy effectively borrowed for free. However, there’s one catch – if MSTR doesn’t hit a fixed price by June 1, 2028, noteholders can demand repayment in cash.
The End of the "Bitcoin Yield" Narrative?
If noteholders seek redemptions, MicroStrategy can refinance (probably on less favorable terms) or sell Bitcoin. Either way, MSTR’s persistent premium to its BTC treasury could evaporate overnight. This would bury MicroStrategy’s "Bitcoin yield" narrative.
A Warning for Investors
For most investors, vanilla spot BTC exposure – including ETFs like BlackRock’s iShares Bitcoin Trust ETF – presents more than enough volatility. If you’re a ‘triple maxi’ Bitcoin bull like Saylor, then by all means, bet big on MSTR. More cautious investors should stay away.
Conclusion
While MicroStrategy’s performance since 2020 is impressive, the company’s multibillion-dollar Bitcoin bet is a house of cards. The cycle that has sent shares skyward will eventually reverse course, and the "Bitcoin yield" narrative may come crashing down.
Alex O’Donnell is a senior writer for Cointelegraph. He previously founded DeFi developer Umami Labs and worked for seven years as a financial journalist at Reuters, where he covered M&A and IPOs. He is also the crypto growth lead at startup accelerator Expert Dojo.
This article is for general information purposes only and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
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