Between 2011 and most of 2020, MicroStrategy’s market cap ranged between $1 billion and $2 billion. Today, its capital is $85 billion, and a cryptocurrency is responsible for this: Bitcoin. What happened? Let’s see.

What is MicroStrategy?. Founded in 1989 by Michael J. Saylor (pictured), Sanju Bansal and Thomas Spahr, the company began developing software solutions through which companies could analyze data and make decisions. Things didn’t change much over the next 30 years, and the company seemed to have stagnated in the last decade, although it grew noticeably. And then something happened.

let’s buy bitcoin. In August 2020, Saylor announced that his company would purchase Bitcoin as part of its strategy to have capital reserves. At the time, it spent $250 million to buy 21,454 bitcoins at a cost of $11,863 per bitcoin. One Bitcoin is currently worth more than $97,000. This first bet was just the beginning.

Let’s buy (a lot more) Bitcoin. Since then, MicroStrategy hasn’t stopped buying bitcoin, and in fact has doubled down on its commitment to the cryptocurrency in recent weeks, even as the price has reached all-time highs. It invested almost $100 billion to buy 171,430 bitcoins between November and December 2024.

MicroStrategy has more bitcoin than the US (or China). As Sherwood noted, MicroStrategy currently has more Bitcoin than the US and China combined. MicroStrategy currently has 423,650 bitcoins, while the US has 208,000 and China has 190,000 (but there may be more in private wallets). And they have no intention of stopping buying: At its last conference with investors, the company announced plans to raise $42 billion through stocks and bonds and then use them to buy more bitcoin.

Source: Sherwood News

What’s going on here? MicroStrategy is financing the purchase of Bitcoin by issuing convertible bonds. These bonds allow creditors to convert debt into equity at a specific future price; This allows them to benefit from low interest rates, among other things. For example, the last issue was made with 0% interest. For example, if the stock price is $100, the company might issue convertible bonds with a conversion price of $130. If the stock rises to $200 before the bonds mature, investors can make a nice profit by exchanging their bonds for $130 shares and selling them for $200.

An uncomfortable situation. This strategy allows you to buy more bitcoins without immediately spending large amounts of cash, but it introduces an odd situation: The company’s market value ($85 billion) is very different from the value of its bitcoins ($41 billion). It’s true that MicroStrategy continues to generate revenue from its data mining and business intelligence software, but it can’t even remotely close the gap between both values. A three-year analysis from Citrini Research described this MicroStrategy strategy as a “financial perpetual motion machine.” At least as long as Bitcoin continues to gain value.

Impact on your actions. The company benefits from the rise in Bitcoin price, which also increases the value of its shares. The development can be analyzed at BitcoinTreasuries.net; Here you can see how MicroStrategy shares have risen from $12.36 to $395.01 since you started buying bitcoin. That’s all great as long as Bitcoin goes up, but what happens if the value of Bitcoin drops noticeably?

Danger. If the Bitcoin price starts to drop steadily, MicroStrategy could face very serious problems. For starters, you’ll probably need to sell Bitcoin to pay your creditors. This could start a negative cycle, affecting the price of Bitcoin, dropping it further and forcing further selling. The bull market gives the company an advantage, but there is high risk if the value of Bitcoin drops significantly.

Image | MicroStrategy | Erling Løken Andersen

in Xataka | Bitcoin surpassed $100,000 as the crypto world was unusually quiet. It’s a good sign