Business intelligence firm MicroStrategy has significantly increased its Bitcoin (BTC) purchases this month in response to bullish sentiment following President-elect Donald Trump’s victory on November 5. The company’s recent acquisitions have brought its total Bitcoin holdings to approximately $38 billion.
Convertible notes fuel massive Bitcoin purchases
Co-founder on November 25 Michael Saylor announced via social media that MicroStrategy had acquired 55,500 BTC for $5.4 billion between November 18 and 24.
This purchase was financed with proceeds from the $3 billion issuance of convertible notes and the sale of common stock, as described in a submit with the US Securities and Exchange Commission (SEC).
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Since beginning its Bitcoin acquisition strategy in 2020, Saylor has shifted from using corporate money to a more complex financing model that involves selling convertible debt and equity.
The latest convertible bond was issued at a zero percent interest rate, reflecting lenders’ confidence that MicroStrategy’s shares will rise above the conversion price in the future.
Jeffrey Park, portfolio manager at Bitwise Asset Management, noted that Saylor has effectively used financial arbitrage within the company’s treasury structure, allowing MicroStrategy to borrow money at virtually no cost.
Saylor too revealed that MicroStrategy’s treasury operations have delivered a substantial 59.3% in Bitcoin returns to date, translating into a net profit of approximately 112,125 BTC for shareholders, or approximately 341 BTC per day.
At an expected price of $100,000 per BTC, Saylor stated that this could mean an impressive $11.2 billion for the year, which equates to approximately $34.1 million per day.
Analyst warns of risks with leverage strategy
Since its foray into Bitcoin, MicroStrategy has acquired a total of 386,700 tokens, with an average purchase price significantly lower than current market value.
The latest acquisitions took place as Bitcoin prices neared an all-time high, with the company purchasing the new tokens for around $97,862 each, slightly above their current trading price.
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However, this leveraged strategy has raised concerns among some analysts, especially afterwards MicroStrategy shares (MSTR) fell 16% last Thursday.
Critics warn that if Bitcoin’s price falls sharply, the company’s shares could suffer similarly, recalling the downturn in 2022, when the cryptocurrency market suffered significant losses.
TD Cowen analyst Lance Vitanza commented on the risks involved leverwhich states: “When you apply leverage to something, you amplify returns in both the upward and downward directions.” He emphasized that MicroStrategy is a pioneer in applying this leverage strategy specifically to Bitcoin.
At the time of writing, the market’s leading cryptocurrency is trading at $95,350, registering a 1.7% price drop within a 24-hour span.
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