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MicroStrategy has done a lot of “deals” to raise huge amounts of money to buy Bitcoin. Bitcoin price usually reacts positively to information coming from this giant. However, with the latest announcement of MicroStrategy, the story has turned.
MicroStrategy announced a proposal to raise $400 million to buy Bitcoin on June 7, to add to the 92,079 BTC, or $3.3 billion, that it already holds in its coffers. That Bitcoin will be held under a new subsidiary called MacroStrategy.
To raise money to buy, MicroStrategy is getting back to selling bonds. Bonds are debt that one can buy, with the promise of a return of principal and interest. In this case, institutions can buy MicroStrategy debt, which the company will then use to buy more Bitcoin, which it believes will increase in value in the future.
MicroStrategy is issuing premium secured bonds that mature in 2028. In its previous bond sale, MicroStrategy sold convertible premium bonds. The fundamental difference on this sale is that the convertible notes have an option to convert them into MSTR shares.
However, investors may have grown weary of the company’s pursuit of Bitcoin, which has left MicroStrategy with little cash left. This private placement is $23 million more than the company’s entire operating cash flow since 2016. MicroStrategy, ostensibly a cloud software and analytics company, has essentially become one. Bitcoin funds are publicly traded.
Shares of the company are down 3% today, at just under $470. MicroStrategy’s existing bonds hit the bond market even harder, falling by up to 9%. The $900 million convertible bond the company sold in February for $101.25 is now down to $66.62.
As Bloomberg describes, corporate debt issued for $400 million for the latest Bitcoin purchase has a very high risk of default. MicroStrategy also posted SEC filings on its website today showing that the company is suffering a loss of $284.5 million based on fluctuations in the Bitcoin market price during Q2 2021.
Total damage amounted to 500 million USD. A loss on losses reduces the value of an asset on a company’s balance sheet to its lowest price for that quarter, meaning MicroStrategy is now officially undervalued compared to last week.
Bitcoin price has plummeted from an all-time high from around $64,000 on April 12 to around $33,000 today. This clearly shows that MicroStrategy’s Bitcoin staking is no longer as profitable as it once was.
MicroStrategy bought its Bitcoins at an average price of $24,403 per BTC. Even with Bitcoin’s spring boom, MicroStrategy raked in over $1 billion in unrealized profits (before tax implications were considered). But MicroStrategy CEO Michael Saylor isn’t about to sell the way he’s been attached and pro-Bitcoin all this time.
Synthetic
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