Saylor's Bitcoin Gamble At MicroStrategy Is Risky At Best

Long leading the way in corporate cryptocurrency adoption, MicroStrategy marks territory as an early and active Bitcoin adopter

MicroStrategy (NASDAQ:MSTR) is planning to increase its share count by 10 billion, a move that will allow the company to raise funds for further Bitcoin purchases.

The company filed an amendment to Form S-3 with the Securities and Exchange Commission on Monday, revealing its intention to raise capital through sales of common stock, preferred stock, debt securities, and other equity or debt instruments.

The proceeds from these sales will be used for "general corporate purposes, including the acquisition of bitcoin," according to the filing.

At the end of last year, MicroStrategy had about 132,500 BTC on its balance sheet, with an average purchase price of around $30,100. The company's bitcoin holdings were valued at about $4.1 billion at the time.

However, the company's bitcoin purchases have slowed down in recent quarters. In Q4 2023, MicroStrategy purchased 2,397 BTC at an average price of $44,837, spending a total of $107 million. This was significantly lower than the $1.03 billion spent on 14,322 BTC in Q3 2023.

The company's stock price has also declined in recent months, closing at $220.04 on Monday. This is down from a 52-week high of $322.36, but still above the 52-week low of $113.08.

Several analysts have expressed contrasting views on the company's strategy and upcoming capital raise.

"We believe MicroStrategy's upcoming capital raise will be used to continue purchasing bitcoin, given Saylor's commentary and the company's recent actions," wrote Truist Securities analyst Joel Fishbein in a recent note to clients.

"This strategy is designed to increase MicroStrategy's bitcoin holdings and, ultimately, its enterprise value. While this strategy could be beneficial if bitcoin prices rise, it also carries the risk of diluting MicroStrategy's earnings and making it more difficult for the company to achieve profitability."

Piper Sandler analyst Weston Kulkarni, on the other hand, believes that the company's bitcoin purchases are coming at a time when "cryptocurrency markets are recovering from a down year in 2022."

"We believe bitcoin is still trading at a discount to our long-term price target of $100k, presenting an opportunity for further price appreciation and realized gains for bitcoin holders like MicroStrategy," Kulkarni added.

While MicroStrategy's bitcoin strategy has attracted attention and sparked discussions among investors and analysts, it's important to note that cryptocurrency markets are highly volatile and can be influenced by a range of factors, including regulatory changes, technological advancements, and macroeconomic conditions.