Business intelligence firm MicroStrategy dramatically increased its purchases of Bitcoin (BTC) this month in response to bullish sentiment following President-elect Donald Trump’s November 5 victory. The company’s recent acquisitions have brought its total Bitcoin holdings to about $38 billion.
Convertible notes are fueling massive purchases of Bitcoin
On November 25, co-founder Michael Saylor It announced on social media that MicroStrategy acquired 55,500 Bitcoin between November 18 and November 24 for $5.4 billion.
This purchase was financed through proceeds from the issuance of $3 billion convertible notes and sales of common stock, as detailed in Deposit With the US Securities and Exchange Commission (SEC).
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Since initiating its Bitcoin acquisition strategy in 2020, Saylor has shifted from using corporate cash to a more complex financing model that includes the sale of debt and convertible equity.
The most recent convertible note was issued at a zero percent interest rate, reflecting lenders’ confidence that the value of MicroStrategy shares will rise beyond the conversion price in the future.
Jeffrey Park, Portfolio Manager at Bitwise Asset Management male That Saylor effectively took advantage of financial arbitrage within the company’s treasury structure, allowing MicroStrategy to borrow money at virtually no cost.
Saylor too open MicroStrategy’s treasury operations have generated a whopping 59.3% BTC returns year-to-date, which translates to a net profit of about 112,125 BTC for shareholders, or about 341 BTC per day.
With a projected price of $100,000 per bitcoin, Saylor stated that this could mean an impressive $11.2 billion for the year, equivalent to about $34.1 million per day.
Analyst warns of risks in leverage strategy
Since its entry into Bitcoin, MicroStrategy has acquired a total of 386,700 tokens, with an average purchase price well below its current price. Market value.
The latest acquisitions occurred while Bitcoin prices were near all-time highs, with the company purchasing the new tokens at approximately $97,862 each, slightly above their current trading price.
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However, this leverage strategy raised concerns among some analysts, especially afterward MicroStrategy Stocks (MSTR) fell 16% last Thursday.
Critics warn that if Bitcoin’s price falls sharply, the company’s shares could similarly suffer, pointing to a downturn in 2022 when the cryptocurrency market experiences significant losses.
Lance Vitanza, TD Cowen analyst, commented on the risks associated with impactsaying: “When you apply leverage to anything, you amplify the returns both to the upside and to the downside.” He emphasized that MicroStrategy is the pioneer in applying this leverage strategy specifically to Bitcoin.
At the time of writing, the market-leading cryptocurrency is trading at $95,350, registering a 1.7% price decline in the 24-hour time frame.
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