On Tuesday, shares of MicroStrategy (MSTR.O) experienced a significant drop of approximately 8.5% following the company’s announcement of its intentions to initiate a $600 million private offering of convertible notes.
The purpose behind this move is to fund further acquisitions of bitcoins.
This announcement comes at a time when MicroStrategy, the publicly listed entity with the most substantial bitcoin assets, reached a remarkable 24-year high on Monday, buoyed by the recent surge in cryptocurrency values.
Remarkably, bitcoin itself broke new ground on Tuesday, achieving an all-time high of $69,202.
The context of these developments includes a broader trend where U.S. companies have successfully raised close to $7 billion over the past fortnight via convertible bonds.
This strategy is particularly noteworthy in the current climate of high interest rates, as it offers a way to secure funds at more favorable coupon rates.
MicroStrategy’s foray into bitcoin began in 2020, and the firm has been aggressively increasing its holdings since, amidst declining revenues from its primary software business.
In a recent purchasing spree, MicroStrategy added roughly 3,000 bitcoins to its portfolio, bringing its total to 193,000 bitcoins, acquired at an average cost of $31,544 each, as of February 25.
With the current bitcoin price hovering around $66,850, the value of MicroStrategy’s holdings has escalated to approximately $12.90 billion, nearly doubling the investment’s initial outlay, per Reuters’ calculations.
The company’s market valuation, as per the last closing figures provided by LSEG, was around $22.64 billion.
Commenting on the strategy, Michael O’Rourke, chief market strategist at JonesTrading, noted, “Maybe MicroStrategy has found the perpetual money trade, repeatedly sell debt, and invest the proceeds in the asset you own, further fueling its rally.”
“The optimism surrounding MicroStrategy’s approach is mirrored by the investment community, with the four brokerages tracking the firm unanimously recommending a “buy” or higher rating.
The company’s aggressive bitcoin investment strategy has not only propelled its share price up by 92% year-to-date but has also placed significant pressure on short sellers.
According to data from Ortex, around 20.6% of MicroStrategy’s free float was being shorted, leading to approximately $2.5 billion in losses for these investors this year alone, $1.6 billion of which occurred in the last five trading sessions.
This is set against a backdrop where publicly listed companies cumulatively possess about $18.5 billion in bitcoin, showcasing the growing corporate interest in cryptocurrency investments.