MicroStrategy goes big with Bitcoin — takes out $900m in debt to fund its' Bitcoin splurge - The Average Joe

MicroStrategy goes big with Bitcoin — takes out $900m in debt to fund its’ Bitcoin splurge

MicroStrategy

February 17, 2021

In a simpler time, MicroStrategy was a business analytics company. In the crypto era, MicroStrategy is a Bitcoin company disguised as a business analytics company.

Over the past 6 months, the “business analytics” provider has accumulated over $3.5b worth of Bitcoin — sending its stock up over 600% since its first Bitcoin purchase in Aug. 2020.

On Feb. 16, the company announced it would take out another $600m in debt to buy more Bitcoin…

A survivor from the dot-com bubble…

MicroStrategy went public in 1998 during the dot-com internet bubble. But unlike other dot-com companies (i.e. Pets.com) that was burning hundreds of millions of dollars, MicroStrategy had a viable business model and was “profitable” at one point.

In a series by the Washington Post that documented the story of MicroStrategy’s rise and fall, CEO, Michael Saylor, was highlighted as an egomaniac with an obsession for MicroStrategy’s rising stock price.

In 2000, an accounting fraud was discovered and MicroStrategy was accused by the SEC of reporting a profit when it was losing money — sending its shares down over 95% and collectively investors lost over $11.1b.

More of the same 20 years later…

Over the past 10 years, MicroStrategy struggled with flat sales growth, decreasing profits and more competition from analytics tools by Tableau (acquired by Salesforce), Microsoft and SAP.

Struggling to find a productive use for its cash, Saylor decided to take the company in a different direction — Bitcoin…

  • Made its first investment in Bitcoin using $250m of the company’s cash in Aug. 2020.
  • Issued $650m in debt to buy another 29,646 Bitcoin in Dec. 2020.

As of Feb. 2, the company has 71,079 Bitcoins worth over $3.4b — nearly 40% of the total value of the company. And that’s not the end… On Feb. 16, MicroStrategy issued $900m in debt to buy more Bitcoin.

While MicroStrategy’s stock has increased 600% since Aug., the price of Bitcoin has only grown 320%. Why the difference? By taking out debt, MicroStrategy is leveraging itself — if Bitcoin’s price rises, MicroStrategy’s stock would rise more than Bitcoin… And if it falls, Microstrategy’s stock will also fall substantially more.

For investors… Pure genius or madness?

Genius, if cryptocurrencies rise to $146k in the long-term as forecasted by JPMorgan.

But madness, if cryptocurrencies crash 80% just like it did 2017.

With 40% of the company’s value in Bitcoin and even more to come, Saylor has tied MicroStrategy and its investors’ fate with that of cryptocurrencies’.

Learn more: Why is Tesla using cash to buy Bitcoin?