On February 17th 2021, MicroStrategy announced that it intends to raise an aggregate amount of USD900 million in a convertible senior note sale offering “subject to market conditions and other factors.” The company says it will use the capital raised to buy more bitcoins.
The value of Microstrategy’s bitcoin holdings currently sit at ~USD3.5 billion. Driven in part by the news of Microstrategy’s convertible note offering, the bitcoin price jumped from USD47,517 to USD50,246 on February 16th, crossing the USD50,000 price milestone for the first time before falling back.
MicroStrategy's Bitcoin treasury
In terms of Bitcoin news, one of 2020’s biggest stories was that MicroStrategy bought Bitcoin - a lot of Bitcoin. Then, in January this year the company made two more $10M BTC purchases - bringing its total spend so far to $1.145B.
On January 28th MicroStrategy released its Quarter 4 2020 Financial Results in which CEO Michael Saylor told investors. “Going forward, we continue to plan to hold our bitcoin and invest additional excess cash flows in bitcoin. Additionally, we will explore various approaches to acquire additional bitcoin as part of our overall corporate strategy.” Its latest annoucement reveals what at least one of those approaches will be.
Source: MicroStrategy Q4 2020 presentation
The post states that as of January 27th, 2021 at 4:00pm EST, MicroStrategy had 70,874 BTC. At current market rates this is worth ~USD3.5 billion. The majority of the company’s Bitcoin purchases occurred using excess cash flow, the company, however, did successfully raise USD65 million to purchase Bitcoin through a convertible senior note offering.
Comments during the accompanying Q4 earnings call indicate just how important Bitcoin has become to MicroStrategy as a company and a business. Saylor said during the call, “we believe investors should focus on two key metrics to judge our strategy success in 2021 - growth in cloud subscription billings and the price of bitcoin.”
Saylor also describes being enthusiastic about the future of the company’s Bitcoin strategy and aiding other companies to join the Bitcoin treasury reserve asset movement. “We have a chance to be a leader in this marketplace and we're going to do our best to execute on that strategy and help other companies follow us in what we have done.” Referencing the upcoming Bitcoin summit Microstrategy will host titled Bitcoin for Corporations Saylor said “I expect there will be about 2,000 or more, executives and officers, directors and advisors of corporations who are interested in figuring out how they might integrate bitcoin into their corporate strategy.”
Only Bitcoin in MicroStrategy’s treasury plans
In the Q&A portion of the call, when asked if MicroStrategy planned to diversify from Bitcoin, Saylor said “Our view is that Bitcoin is an institutional grade treasury reserve asset. It's 95% dominant as a proof of work crypto asset network. That makes it the crypto asset winner if the use case is money or long-term store of value, i.e., digital gold. So what we wanted with our treasury was, in essence, digital gold from the dominant monetary network in the world.”
Saylor said that other cryptocurrencies did not align fully with that strategy - describing them as “investment theses” instead. “They are more like venture capital investments,” he said, “and they have a different risk reward profile. We don't have a portion of our treasury allocated to venture capital, so it wouldn't be appropriate for us.”
Speaking to Andrew Henderson of Nomad Capitalist on January 28th, Saylor even prosphesized that bitcoin will eventually take over from gold as the world’s primary reserve asset. “Gold is dead money,” he said. “Sell your gold, buy Bitcoin because other people are going to sell their gold and if you wait until you’ve been front-run by all the hedge funds when they dump their gold, you’re going to be the last person out. There’s $10 trillion worth of monetary energy in gold right now. Eventually, it will only be the central banks that will want to hold it. Every private rational actor is going to move out of it and move into Bitcoin.”
Who is Michael Saylor?
Michael Saylor attended the Massachusetts Institute of Technology and graduated in 1987 with a double major in science, technology, and society, and aeronautics and astronautics. It was at MIT that Saylor met his MicroStrategy co-founder Sanju Bansal. After graduation, Saylor spent two years as a computer simulation consultant for The Federal Group and Dupont before he and Bansal launched MicroStrategy in 1989. The company’s core business as a software vendor is enterprise business intelligence (BI) applications. The MicroStrategy platform supports interactive dashboards, formatted reports, scorecards, and ad hoc queries - all designed to help businesses make more informed decisions using their data.
Michael Saylor has purchased the url Hope.com - which now redirects to a MicroStrategy page extolling Bitcoin
In 1992 the company inked a $10 million deal with McDonald’s as its first major client and it never looked back from there. Today MicroStrategy has over 4000 customers in both the public and private sector including Coca-Cola, Johnson & Johnson, and Starbucks. It is listed on the NASDAQ (MSTR) and trades on its Global Select Market (Nasdaq-GS) tier. MSTR’s market capitalization is $9.16 billion and the company reports high renewal rates from blue-chip SAAS customers and continued high recurring revenue from license and support services.
Saylor has led the company through accusations of accounting fraud, a recent string of executive resignations, and numerous volatile trends in the software industry - but by any measure, MicroStrategy today is a bona fide success story and the company has enjoyed a period of strong price growth in recent months.
MicroStrategy buys Bitcoin
Saylor holds around 24% of MicroStrategy’s shares but controls 72% of the company’s voting power through a class of shares that gives him additional votes. Beginning in the summer of 2020 his personal obsession with Bitcoin crossed over into his corporate life, and Saylor has led MicroStrategy in becoming the most ‘pro-Bitcoin’ public company ever.
On August 11th the company completed its initial purchase of 21,454 BTC at a total aggregate purchase price of $250 million (average per Bitcoin= ~ $11653). This purchase was followed by a buy of 16,796 BTC for $175 million (average price per Bitcoin=~ $10419) in September 2020. Next, on the 5th of December, Saylor tweeted that the company had just made its third Bitcoin purchase - confirming a purchase of 2,574 BTC for $50 million in cash (average price per Bitcoin= ~ $19427). Then, Saylor announced by tweet on the 21st of December, that MicroStrategy had just made a huge purchase of 29,646 Bitcoins - bringing the company's total holdings to 70,470 bitcoin. This purchase was funded by a convertible note sale to accredited investors which raised $650 million in early December. Most recently the company purchased another $10M worth of Bitcoin in late January - bringing its total holdings to 70,874 Bitcoin.
Since MicroStrategy's initial Bitcoin purchase on August 11th 2020, the BTC price has increased 322% from $11,673 to $49,304.
Why is Michael Saylor so bullish on Bitcoin?
So why is Saylor such a Bitcoin bull? “This investment reflects our belief that Bitcoin, as the world’s most widely adopted cryptocurrency, is a dependable store of value and an attractive investment asset with more long-term appreciation potential than holding cash," Saylor said after Bitcoin became MicroStrategy’s primary reserve asset.
Bitcoin also clearly appeals to Saylor’s identity as a tech evangelist. In September he tweeted prophetically, “Bitcoin is a swarm of cyber hornets serving the goddess of wisdom, feeding on the fire of truth, exponentially growing ever smarter, faster, and stronger behind a wall of encrypted energy.” Other oracular musings he has made about Bitcoin endorse it as;
- A decentralized 24/7 financial transfer market - “Over the Thanksgiving holiday weekend, #Bitcoin operated uninterrupted for 113.5 hours vs. 3.5 hours for US capital markets. Networks from Google, Apple, Facebook, & Amazon also operated uninterrupted. No one is going to settle for 3.1% availability from their monetary network.”
- A commodity that will become key to an industry - “ The same logic that compels engineers to prefer steel, aluminum, & oxygen for building, flying, & breathing leads me to prefer #Bitcoin for saving.”
- A boosted version of gold that speedily delivers financial freedom for investors - “#Gold delivers financial freedom via horse, buggy, & stagecoach. #Bitcoin is a crypto-powered warp drive. When the monetary mass transit system of the modern state breaks down, we might go back to an economy powered by horses, donkeys & mules, but I doubt it.”
Traditional finance reacts to MicroStrategy’s Bitcoin investments
Since its initial Bitcoin purchase the MicroStrategy stock price is way up. On February 16th, for example, the MSTR price was over $950, a high not seen since 1998.
Analysts have complimented the MSTR stock opportunity as a successful software and analytics business that comes packaged with a treasury strategy that may be attractive to the Bitcoin curious. Citron Research said of the MicroStrategy stock, “investors are getting a best in class software business at a discount and a free call option on owning a growing treasure chest of bitcoins." The research group also suggested that the only “safe and cost-effective way” to get exposure to Bitcoin was through MicroStrategy.
Russell Investments, an investment solutions and market index builder based in Seattle, bought 60,546 MSTR shares on September 30th. This increased its position in MicroStrategy by ~72%. The company had previously endorsed Bitcoin in a 2018 blog which begins “While many are questioning Bitcoin’s foundations, perhaps even more importantly, Bitcoin is questioning the foundations of the central banks.” It goes on to say “Bitcoin is technologically exciting, can sustain a ‘new era’, ‘currency-of-the-future’ interpretation, and has the advantages of being both disparaged and underheld by a skeptical establishment.”
Quant focused hedge fund Renaissance Technologies has also been a major buyer of MSTR in the last six months. The firm has upped its MSTR position by 4x since June and analyst Ryan Todd suggested that the purchasing spree may have begun in response to MicroStrategy’s CFO remarking in a June 28th earnings call that the firm may allocate part of its treasury into Bitcoin.
The largest holder of MicroStrategy’s shares is BlackRock Fund Advisors - which is also the world’s largest asset manager. The firm has reduced its number of shares in MicroStrategy by ~5% this year - but still maintains a 14.79% stake in the company. Blackrock’s CEO Larry Fink said on December 1st that Bitcoin has “caught the attention” of many and that the nascent cryptocurrency asset class can possibly “evolve” into a global market asset in the future.
MicroStrategy’s Bitcoin purchase appears to have snapped the company out of three years of sideways and downward price movement. As Ryan Watkins, a researcher at Crypto data firm Messari, aptly summarized on Twitter “MicroStrategy the past four months: A boring enterprise software company --> A boring enterprise software company with innovative treasury management --> A yolo levered long Bitcoin fund.”