On Monday (December 7), Nasdaq-listed business intelligence company MicroStrategy Inc. (NASDAQ: MSTR) announced that it plans to raise $400 million—via a private offering of convertible senior notes—so it can buy more Bitcoin.
On August 11, MicroStrategy announced via a press release that it had “purchased 21,454 bitcoins at an aggregate purchase price of $250 million” to use as a “primary treasury reserve asset.”
Michael J. Saylor, Co-Founder, Chairman, and CEO of MicroStrategy, said at the time:
“Our decision to invest in Bitcoin at this time was driven in part by a confluence of macro factors affecting the economic and business landscape that we believe is creating long-term risks for our corporate treasury program ― risks that should be addressed proactively.
“Those macro factors include, among other things, the economic and public health crisis precipitated by COVID-19, unprecedented government financial stimulus measures including quantitative easing adopted around the world, and global political and economic uncertainty.
“We believe that, together, these and other factors may well have a significant depreciating effect on the long-term real value of fiat currencies and many other conventional asset types, including many of the assets traditionally held as part of corporate treasury operations.”
A few weeks later, Saylor disclosed that his firm had “completed its acquisition of 16,796 additional bitcoins at an aggregate purchase price of $175 million.”
On September 14, 2020, MicroStrategy completed its acquisition of 16,796 additional bitcoins at an aggregate purchase price of $175 million. To date, we have purchased a total of 38,250 bitcoins at an aggregate purchase price of $425 million, inclusive of fees and expenses.
— Michael Saylor (@michael_saylor) September 15, 2020
Then, last Friday (December 4), the MicroStrategy CEO said that his company had purchased another $50 million worth of Bitcoin.
MicroStrategy has purchased approximately 2,574 bitcoins for $50.0 million in cash in accordance with its Treasury Reserve Policy, at an average price of approximately $19,427 per bitcoin. We now hold approximately 40,824 bitcoins.https://t.co/nwZcM9zAXZ
— Michael Saylor (@michael_saylor) December 4, 2020
Well, yesterday (December 7), MicroStrategy announced that it wants to raise $400 million via a private offering of convertible senior notes to qualified institutional buyers, relying on Rule 144A under the Securities Act of 1933.
Here is how Investopedia defines a senior convertible note:
“A senior convertible note is a debt security that contains an option in which the note will be converted into a predefined amount of the issuer’s shares. A senior convertible note has priority over all other debt securities issued by the same organization.
“Just like any other debt investment, senior convertible notes offer investors the ability to earn interest. Rather than cash payments, however, the interest payments typically will accrue and the amount the company owes the investor will increase over time.”
MicroStrategy said that it “expects to grant to the initial purchasers of the notes an option to purchase, within a 13-day period beginning on, and including, the date on which the notes are first issued, up to an additional $60 million aggregate principal amount of the notes.”
This $400 million will be used by MicroStrategy to buy more Bitcoin:
“MicroStrategy intends to invest the net proceeds from the sale of the notes in bitcoin in accordance with its Treasury Reserve Policy pending the identification of working capital needs and other general corporate purposes.”
Gabor Gurbacs, Director of Digital Asset Strategy at VanEck/MVIS, wants to know at that point does MicroStrategy become an unofficial Bitcoin ETF:
At what point does a securities offering that raises dollars with the purpose of investing in Bitcoin make a publicly listed company to be a listed fund/investment company?
— Gabor Gurbacs (@gaborgurbacs) December 7, 2020
And earlier today, on-chain analyst Willy Woo said:
MicroStrategy stock is about to mimic a leveraged long instrument on BTC.
2x long BTC ETF
Masterfully played. https://t.co/7U6g4GUWE4
— Willy Woo (@woonomic) December 8, 2020
On November 26, Saylor explained why his firm is HODLING so much Bitcoin during an interview with Melissa Lee, host of CNBC’s post-market show “Fast Money
Lee first asked Saylor why he had decided to invest his company’s cash in Bitcoin. Saylor replied:
“Well, the story here is due to the rapid expansion of the monetary supply by the central banks, the cost of capital has tripled from 5% to 15% over the past year, and if we look out over the next four years, bond couponsand EPS growth rates are going to need to exceed that hurdle in order to preserve wealth.
“We had $500 million of cash, but we new we were going to generate another $500 million worth of cash, and we realized that if we held it in cash, it was going to debase by 10–15% a year, and I didn’t want to lose half of it.
“So, what isn’t so well understood is the Bitcoin is the best safe haven treasury reserve asset in the world right now, and it’s engineered to be superior to gold in all aspects. So, that that being the case, a lot of people understand the asset story of Bitcoin — it’s up a 100% annually each year for the past decade more or less.
“What they don’t understand is that Bitcoin is a monetary network, and as a monetary network, it’s capable of storing and channeling energy over time without power loss. So, we got really excited about this idea, and we saw it as a solution for the store of value problem, not just for the $300 trillion of capital in the world, but for the 7.5 billion people on the planet, and so that pretty compelling.”
Lee then wanted to know if MicroStrategy of today is a software company or a Bitcoin hedge fund, i.e. why is MicroStrategy bothering to continue with the business intelligence software business if he really believes that the price of Bitcoin is going to continue going up 100% annually.
“Well, first of all, we do have a software company generating cash, but if we simply swept the cash into fiat currency and it debased 15% a year, we’d be losing as much on the balance sheet as we generated from the P&L.
“So that didn’t make sense. On the other hand, the traditional concerns about Bitcoin had been that it might be hacked, it might be copied, it might be banned, and after a decade, it hasn’t been hacked, no one’s managed to copy it, [it] is not going to be banned. So, although people look at it as being volatile, it’s volatile maybe in the first decade; the next decade going forward, it doesn’t look like it’s going to be that volatile.
“It actually looks like it’s emerging as the primary treasury reserve asset for people who are looking for some way to avoid the great monetary inflation.”
Less than 45 minutes after MicroStrategy’s announcement, Tyler Winklevoss, Co-Founder and CEO of crypto exchange Gemini, tweeted:
— Tyler Winklevoss (@tyler) December 7, 2020
On November 30, the Winklevoss twins explained why they expect the price of Bitcoin to reach $500,000 or more within the next decade.
Their comments about Bitcoin came during an interview with Seema Mody and Andrew Ross Sorkin on CNBC’s “Squawk Box”.
Mody started by asking Tyler what the twins have been doing during the past eight months while Bitcoin has been experiencing a “meteoric” price increase.
“So we’ve just been HODLing. Our thesis is that Bitcoin is gold 2.0 and it will disrupt gold. If it does that, it has to have a market cap of $9 trillion. So we think Bitcoin could price one day at $500,000 a bitcoin. So at $18,000 Bitcoin, it’s a HOLD or at least if you don’t have any, it’s a BUY opportunity because we think there’s a 25x from here.”