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Davide
@0xdavide
šŸ¦Have you ever wondered what strategy Michael Saylor has adopted? Saylor, executive director of MicroStrategy, has been using an innovative strategy to increase the value of the company for years: issuing debt to buy Bitcoin. MicroStrategy, founded in the 1980s, often recorded losses until, in 2020, it began financing the purchase of BTC through convertible bonds. Key points of the strategy: āœ…Issuance of convertible bonds: bonds with a five-year maturity and rates lower than 1%. āœ…Purchase of Bitcoin: use of the capital raised to buy BTC, betting on its future appreciation. āœ…Increase in share value: if BTC rises, the value of MicroStrategy shares also increases in leverage (over time, however, the growth will be lower because the emissions will dilute the price). Why buy bonds and not BTC or Microstrategy stock?
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Davide
@0xdavide
āˆŽ Bond-investor perspective: āœ…Purchase of bonds (liquidity is lent): indirect exposure to BTC with mitigated risk due to the conversion price (at maturity). āœ…Conversion price: if the value of the stock exceeds the threshold established at maturity, the bond is converted into shares with earnings much higher than the loaned credit. Otherwise, the investor receives the loaned capital plus a small interest. šŸŸ¢Pros and šŸ”“cons of the strategy: āœ… Possibility of high returns in the event of an increase in the price of Bitcoin. āœ… Very attractive and profitable instrument for institutional investors. āŒ Risk of MicroStrategy default if BTC drops in price by a lot.
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Davide
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šŸ’°At the maturity of the bonds, Microstrategy should always have liquidity available to repay the loans. If Saylor's average carrying price is much higher than the price of BTC, the company could have difficulty repaying its debts if it does not have available cash. At that point he should start selling BTC, triggering further price declines and distrust in the market. šŸ–¤šŸ¦¢Remember though: even in the event of a black swan, BTC does not depend on any company in the world. Bearish volatility will be short-term and bear markets will always be buying opportunities!
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