- Former CEO Michael Saylor played a crucial role in MicroStrategy’s Bitcoin strategy
- The spot Bitcoin ETFs will likely help, rather than hurt, MSTR stock prices
The business intelligence software provider MicroStrategy [MSTR] added to its massive Bitcoin [BTC] shares on December 27. The company is building a bold new future for itself, one that is not the norm for companies.
co-founder Michael Saylor has ensured that the company has taken this path. However, the critics were brutal, especially after the 2022 Bitcoin crisis.
The king coin only started a recovery in the second half of 2023. However, at the time of writing, the price was almost $44,000 and MicroStrategy has billions of dollars in profits on its BTC holdings.
Moreover, as promised, it purchased an additional 14,620 BTC for almost $615.7 million. The company is the largest corporate holder of BTC, with a total of 189,150 bitcoins.
MicroStrategy acquired another 14,620 BTC for ~$615.7 million at an average price of $42,110 per #bitcoin. From 26/12/23, @MicroStrategy now 189,150 $BTC purchased for ~$5.9 billion at an average price of $31,168 per bitcoin. $MSTR https://t.co/PKfYY59sTW
— Michael Saylor⚡️ (@saylor) December 27, 2023
This amounts to ~1% of the total circulating supply. This has raised concerns among some in the crypto community that MicroStrategy and Saylor could wield immense power in the future.
Any trade from Saylor could move the market, but is this a valid concern?
Meet Bitcoin maximalist Michael Saylor
Michael Saylor, the executive chairman, co-founder and former CEO of MicroStrategy, is a big part of the reason. He has been CEO of the company since its founding in 1989 resigned of the role in 2022.
This came after Bitcoin’s falling prices put a major dent in the company’s balance sheet.
Despite these losses, Saylor is adamant that Bitcoin has an excellent long-term position. This is because he believes that companies will struggle hard, and ultimately fail, to beat the slow but gigantic monster called inflation.
Saylor shared how he “developed a lake nuanced appreciation of inflation.” This came in the Stephan Livera podcast back in September 2020.
He argued that the consumer price index, or CPI, is an arbitrary measure of inflation, where they pick a basket of goods whose costs aren’t rising much and call that inflation.
But this basket does not cover all goods and services. He talked about other goods and services, such as education and medicine, increasing by 6 to 8% or more.
Another basket of stocks, debt, prime real estate and scarce art is rising 8% to 24% per year. Saylor called it a “horribly painful category.” He also noted that the S$P 500 index has delivered similar returns over the past decade.
If we look at the the performance of the index and take the average, we realize that he is not wrong. He argues that this is why the conventional idea of referring to inflation based solely on the CPI figures misses crucial nuances.
Ultimately, a person’s savings are no longer safe in the bank because they are bleeding so badly from inflation. They are forced to study the markets to find more attractive assets that yield higher returns.
“That’s what our monetary policy has done to the grassroots,” Saylor said. His appearance on the Lex Fridman podcast in 2022 also shed a lot of light on his thinking.
There he talked about what the year is like “quite catalytic for digital assets in general, and Bitcoin in particular.” Persistent inflation in the US is a major shock, and everyone, including businesses, is in a constant battle to stave off inflation.
Saylor decided to take action after concluding that their corporate coffers were declining at a rate of more than 10% per year.
After much effort, research and intensive discussions, Saylor convinced the company that buying Bitcoin was the wisest thing to do with their corporate treasury.
Bitcoin gains over the past six months justify Saylor’s condemnations
MicroStrategy Incorporated stock [MSTR] has increased by 350% since January 3, 2023. Much of this gain was due to the addition of BTC to the balance sheet books. As a software provider, the company has done quite well in its business.
The third quarter of 2023 financial highlights of the company showed that its total revenue increased by 3.3% compared to the third quarter of 2022. However, the company suffered a net loss for the third quarter of 2023. This amounted to $143.4 million.
Impairment losses on the company’s digital assets totaled $33.6 million this quarter.
Still, investors are realizing that MSTR is one of the ways to gain exposure to BTC simply because of the amount of shares the company owns. If you own BTC directly on exchanges, you may lose money on commissions. S
Taking it offline also incurs network costs. Then there are the costs of security. Owning BTC through funds like the Grayscale Bitcoin Trust also leaks some profit from management fees.
Bitcoin as a reserve treasury
Because of these disadvantages, it is easier for an investor to get into MSTR stock than to want to own Bitcoin directly. MicroStrategy’s BTC purchases have fueled debt.
Adam Cochran at X (formerly Twitter) provided one extensive dive in this aspect.
The BTC holdings of 189,150 BTC at a market rate of $43,200 brings their holdings to $8.171 billion. According to the previous statement, this acquisition cost ~$5.9 billion. This puts the company at a profit of more than $2 billion.
The company’s market capitalization at the time of writing is $8.63 billion. This meant that more than 80% of the company’s value was due to its BTC holdings. This is not the norm.
Saylor has used their cash piles and accumulated debt to pursue this path with great conviction, and so far this effort has yielded positive results.
Similarly, MSTR gains value as BTC rises, but its investors do not directly own BTC. Several ETF applications have been filed with the SEC in recent months. The deadline for the ruling on these applications is January 10.
BlackRock, one of the largest asset managers in the world, expects approval of its BTC ETF on January 10. The company has more than $9 trillion in assets under management (AUM).
According to Bloomberg ETF analyst, the chances of an ETF rejection are decreasing Eric Balchunas.
Experts speculate that final approval for spot Bitcoin ETFs could happen on or before January 10. This is the date on which the US Securities and Exchange Commission will rule on an ETF proposal from ARK Invest and 21Shares.
This, in turn, could reduce the appeal of MSTR stock in the eyes of investors looking for indirect exposure to Bitcoin. However, Michael Saylor disagrees with this idea.
During an interview with BloombergTVsaid Saylor,
“The ETFs have no leverage and charge a fee. We offer you leverage, but don’t charge any fees. We provide a powerful vehicle for people who are Bitcoin long investors.”
The ETF approvals could open a floodgate, and investors everywhere could consider allocating a small portion of their portfolios to Bitcoin.
Again, while the majority agrees that this is great news for the crypto industry, the short- and long-term effects on price remain unknown.
Bitcoin’s short-term price action indicates volatility
Source: BTC/USDT on TradingView
Over the past month, BTC has been trading within a range (purple) stretching from $43.4k to $40.6k. Above the $43k-$45k resistance zone are $47.2k and $52k levels that prices could reach soon.
If a new breakout beyond the $45k region occurs, a retest of the current range highs would provide a buying opportunity.
Read Bitcoin’s [BTC] Price forecast 2024-25
The volatility we saw a week ago, when BTC fell from $45,000 to $40,800 in a day, could repeat itself after the BTC ETF news broke. The chances of a rejection and a sharp price drop were slim, but investors should be prepared for this possibility.
On the plus side, approval would mean that long-term investors can continue buying Bitcoin without paying too much attention to the resistance levels of the past two years. In the words of Saylor: a 10X from here is feasible for the entire sector.