MicroStrategy taking on debt to buy Bitcoin adds risk to crypto rally – JPMorgan
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Bitcoin has expanded its last year’s momentum into 2024, with the BTC price blasting above the $72,000 mark earlier in the week, hence touching a new all-time high for the first time since November 2021.
The impressive rise in cryptocurrency value hasn’t deterred MicroStrategy Incorporated (NASDAQ:MSTR), the largest corporate investor in Bitcoin, from increasing its holdings. Under the leadership of Michael Saylor, the enterprise software maker has recently accelerated its purchases, now possessing over 200,000 BTC.
What does MicroStrategy do?
MicroStrategy is a provider of enterprise software solutions and services.
The company specializes in business intelligence, mobile software, and cloud-based solutions. Its flagship product, the MicroStrategy analytics platform, offers advanced data analytics capabilities, allowing organizations to analyze vast amounts of data and make informed decisions.
However, over the past few years, the company became widely known for its significant investment in Bitcoin as part of its corporate treasury strategy.
Positioning itself as the “world’s first Bitcoin development company,” the firm has made it its mission to contribute to the Bitcoin network’s growth and development. The company channels its cashflows and proceeds from equity and debt financings into the acquisition of Bitcoin, which it holds as its main asset in treasury reserves.
How much Bitcoin does MicroStrategy own?
Earlier this month, filings with the US Securities and Exchange Commission (SEC) revealed that MicroStrategy acquired 12,000 BTC for $821.7 million, its second-biggest purchase since beginning its cryptocurrency investments nearly four years prior.
This acquisition, executed between February 26 and March 10, was mainly financed using the $800 million generated from the sale of convertible notes recently by the company.
This new purchase increased the company’s BTC holdings to around 205,000 tokens, with a current value of nearly $15 billion. JMP analysts said yesterday that the Bitcoin price could hit $280,000 over the next 3 years.
More recently, on Wednesday, the business intelligence service provider announced its plans to issue an additional $500 million in convertible debt, which it will use for more Bitcoin purchases.
If BTC continues trading around the current $73,000 level, it will allow MicroStrategy to buy approximately 6,800 additional tokens with proceeds from this new offering.
JPMorgan warns about more debt-funded Bitcoin buying
After buying more than $1 billion worth of Bitcoin in Q4 2023, MicroStrategy continued its aggressive approach strategy into 2024, acquiring roughly the same amount since the start of 2024.
As such, it is safe to say that the company itself has also played a noteworthy part in amplifying the cryptocurrency’s momentum.
However, its strategy of buying more BTC through convertible-debt offerings adds risk to the currency crypto market rally, according to JPMorgan strategists.
“We believe debt-funded bitcoin purchases by MicroStrategy add leverage and froth to the current crypto rally and raise the risk of more severe deleveraging in a potential downturn in the future,” said strategists led by Nikolaos Panigirtzoglou.
Bitcoin was trading close to the $72,500 mark at the time of writing, up 72% year-to-date.
