Key Takeaways
- MicroStrategy's stock has surged by 350% in 2023, primarily due to expectations of a Bitcoin ETF approval;
- The company holds a substantial amount of Bitcoin, making its stock akin to a leveraged Bitcoin ETF;
- MicroStrategy's financing strategy includes low-interest debt and share issuance, positioning Bitcoin as a hedge against fiat currency devaluation.
MicroStrategy (MSTR) has experienced an extraordinary 350% surge in its stock price throughout 2023, driven by its substantial Bitcoin holdings and the growing anticipation of the approval of a Bitcoin ETF in the United States.
As of the latest update, MSTR is trading at $670, marking an 11.06% intraday increase.
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While MicroStrategy is renowned for its business intelligence, mobile software, and cloud-based services, its expanding exposure to Bitcoin has made its balance sheet increasingly dependent on the volatility and risks inherent in the cryptocurrency markets.
The company's substantial exposure to Bitcoin, with holdings of 189,150 BTC, valued at approximately $5.9 billion, and an average purchase price of $31,168 per BTC, has propelled its stock to new heights.
This development has led some analysts to characterize MicroStrategy's stock as essentially a leveraged Bitcoin ETF.
Seeking Alpha has analyzed the financing strategy behind MicroStrategy's substantial BTC purchases, revealing a combination of long-term, low-interest debt, and share issuance. This approach has enabled the company to fund its Bitcoin acquisitions effectively.
Notably, the senior convertible notes, a debt instrument, are a key component of this financing strategy. As stated in the aforementioned analysis:
The senior convertible notes aren't due until December 2025. From Saylor's perspective, it's unwise to save in a fiat currency that is perpetually debased when he can instead put the company's treasury in a liquid asset that doesn't suffer from dramatic supply inflation.
As of September 30, MicroStrategy's total liabilities decreased by 7.7% year-over-year, amounting to $2.534 billion, with long-term liabilities standing at $2.180 billion.
The U.S. Securities and Exchange Commission (SEC) is expected to render a decision in early January regarding the possibility of allowing Bitcoin spot trading through ETFs. Notably, major financial firms such as Fidelity and BlackRock are among the contenders in this space.
If approved, this move could significantly elevate Bitcoin's price and enhance market liquidity, opening up the cryptocurrency to a broader spectrum of investors.
Even now, despite challenging macroeconomic conditions and crypto industry headwinds, Bitcoin's price has surged by more than 160% in 2023, surpassing the performance of traditional assets.
