MicroStrategy Keeps Buying Bitcoins And Now Holds Almost $14 Billion Worth In BTC

MicroStrategy, a pioneer in business intelligence and software, has reinforced its commitment to Bitcoin with the acquisition of an additional 122 BTC for $7.8 million in April, as announced by Founder & Chairman Michael Saylor.

The company’s President and CEO, Phong Le, stated that as the world’s inaugural Bitcoin Development Company, MicroStrategy is dedicated to enhancing the Bitcoin network through its involvement in the financial markets, advocacy, and technological innovation.

With this latest purchase, MicroStrategy now possesses a total of 214,400 bitcoins, which have been acquired at an average price of $35,180 each.

Understanding MicroStrategy’s Aggressive Bitcoin Accumulation

Since entering the Bitcoin market in August 2020 with an initial $250 million investment, MicroStrategy has continually expanded its Bitcoin holdings, amassing over 214,400 bitcoins valued at almost $15 billion. MicroStrategy’s Chief Financial Officer, Andrew Kang, recently highlighted that the company raised over $1.5 billion in the first quarter through two successful convertible debt offerings and purchased an additional 25,250 bitcoins.

This marked the 14th consecutive quarter that MicroStrategy has increased its Bitcoin reserves. Kang emphasized that MicroStrategy’s operational strategy, combined with its focus on Bitcoin and technological innovation, offers a unique opportunity for shareholder value creation, particularly as Bitcoin prices have risen significantly. This increase is largely attributed to the approval of spot bitcoin exchange-traded products, boosting institutional demand and regulatory clarity.

The company’s commitment to Bitcoin investment continues unabated following the cryptocurrency’s fourth halving event, which reduced the mining reward from 6.25 to 3.125 BTC per block.

According To The Old Accounting Standard, MicroStrategy Reported A Operating Loss of $53.1M In Q1

In its recent financial update, MicroStrategy reported a substantial operating loss of $53.1 million for the first quarter, primarily due to a digital asset impairment charge amounting to $191.6 million. Despite the rally in Bitcoin prices during the quarter, MicroStrategy opted against adopting a new accounting standard that would have reflected its digital assets at fair value, which could have shown a significant profit.

Under the prevailing accounting norms, the company’s Bitcoin was valued at $23,680 per unit by the end of the quarter, totaling $5.1 billion, significantly lower than the market closing price of $71,028 per Bitcoin at the end of March.

Andrew Kang, the Chief Financial Officer of MicroStrategy, indicated during the earnings call that the company is poised to switch to the new fair value accounting standard for digital assets. He noted that the transition is under careful consideration for timing, even though the Financial Accounting Standards Board (FASB) has allowed early adoption of the rule, which is officially set to be required by January 1, 2025.

Michael Saylor Reaped Some Great Profits With Old Options

Michael Saylor, the controlling shareholder of MicroStrategy, has recently raised approximately $400 million from pre-planned daily sales of about 5,000 shares each day. These sales, which started in January and continued until last week, were tied to the exercising of options granted to him in 2014 that were nearing expiration. Remarkably, the company’s stock price has doubled this year, reaching around $1,290, outperforming even the gains of the original cryptocurrency over the same timeframe. In 2014, the company’s shares were trading at approximately $160.

Despite concerns that Saylor might be selling his shares at a market peak, his financial moves appear to be strategic. In a November conference call, he mentioned that for more than a decade he has only drawn a nominal $1 salary from the company, foregoing any cash bonuses. The funds from the stock sales are intended to cover some personal obligations and to allow him to increase his Bitcoin holdings, as stated during the call.

The significant rise in MicroStrategy’s stock has not gone unnoticed in the financial community. Lance Vitanza, a managing director at TD Cowen with a “buy” recommendation for MicroStrategy, noted that the media seems more concerned about Saylor’s stock sales than the investors, who are aware that Saylor still retains a substantial portion of company stock.

However, skepticism remains, particularly from Kerrisdale Capital Management LLC, which announced in March that it is shorting the stock, citing its performance surpassing even the sharp increase in Bitcoin’s value, particularly after the January introduction of U.S. exchange-traded funds that include the cryptocurrency.

Shares Dilution Might Be Just Ahead

Michael Saylor may be anticipating a significant development affecting MicroStrategy’s financial strategy, specifically regarding its stock. According to a Bloomberg report, MicroStrategy is faced with $650 million in convertible bonds set to mature in 2025. These bonds, which currently trade at nearly four times their face value, carry a low coupon rate of 0.75%.

The company has the option to settle these bonds either in cash or by converting them into company stock. If MicroStrategy chooses conversion, this could lead to the creation of up to 1.63 million new shares. Bank of America strategist Michael Youngworth pointed out that the likelihood of these bonds being converted into shares is higher than the company choosing to buy them back due to the bonds’ in-the-money status.

This potential conversion raises concerns about the dilution of value for existing shares, as it could significantly increase the number of shares outstanding, thus potentially diluting the share value for current shareholders.