MicroStrategy: The Company That Transformed into a Crypto Mastodon

As bitcoin hovers around 96,000 dollars, the firm led by Michael Saylor has just unveiled a new bold move: a convertible bond issuance of 2 billion dollars

As bitcoin hovers around 96,000 dollars, the firm led by Michael Saylor has just unveiled a new bold move: a convertible bond issuance of 2 billion dollars aimed at boosting its bitcoin treasure. An audacious, almost provocative strategy that raises as many questions as it fascinates.

How has a traditional company transformed into a crypto mastodon? And above all, how far will this quest go?

Saylor’s Infernal Mechanism: Bonds to Tame Bitcoin

MicroStrategy, renamed Strategy, no longer relies on traditional fundraising. Its favorite weapon? 0% convertible bonds, a hybrid financial instrument that is as enticing as it is bewildering.

These securities, exchangeable for future shares, allow the company to raise billions without immediate interest. A boon for buying bitcoin, but also a risky bet: if the price of bitcoin collapses, bondholders could demand shares at a reduced price, diluting the company’s value.

Saylor’s logic rests on a simple equation: borrow at zero interest, convert the debt into equity if bitcoin rises, and repeat the operation.

Since October 2023, Strategy has already injected 21 billion dollars into this scheme, bringing its reserves to 478,740 BTC. A staggering figure, equivalent to 2.3% of the total bitcoin supply. For some, it is financial genius. For others, a disguised pyramid of debt.

Yet, the market seems to be playing along. Investors even have the option to purchase an additional 300 million dollars in bonds within five days following the issuance.

A confidence that can be explained by past performance: despite net losses of 670 million dollars in the last quarter of 2023, MSTR stock soared by 372% in one year. Proof that, in the crypto era, traditional indicators sometimes lose their meaning.

The Strategy Paradox

How does a company showing colossal losses become a must-have in investors’ portfolios? The answer lies in one word: Bitcoin.

Strategy embodies a new era where value is measured by the digital assets held, not the profits generated. By accumulating bitcoins, Saylor transforms his company into an indirect proxy for bitcoin, attracting investors looking to get exposure to crypto without holding it directly.

But this transformation is not without its shadows. The issued bonds will mature in 2030, unless converted early. Until then, Strategy will have to manage its debts… or hope that bitcoin will have reached stratospheric heights. In the event of a crash, bondholders could demand cash repayments, plunging the company into a nightmarish scenario.

Still, the model is appealing. Twelve U.S. states already hold 330 million dollars in Strategy stock. An institutional adoption that effectively validates Saylor’s strategy, even if it remains marginal.