MicroStrategy has raised $650 million and initiated to purchase more amount of Bitcoins making the exposure to bitcoin to $1.1 billion. This increase in capital a d wise decisions for investment brought a visible change in the risk profile of the company shares. So it is the best time for diligent investors to redefine their position accordingly and get ready to accept the more aggressive risk/reward.
MicroStrategy’s introduced an unusual treasury policy consisted of buying $425 million worth of bitcoin. And after some days of this policy announcement, MicroStrategy CEO Michael Saylor
In the days following the policy announcement, MicroStrategy CEO Michael Saylor who initially treated it as a “reckless bet” narrative, later on, complemented it to be a sage and well-structured decision motivated by several macroeconomic factors.
Viewing the company’s balance sheet, business operations, and prospects, it could be concluded that this strategic decision made perfect sense depending on a risk/reward system. Visit https://bitqs.app/ to know more about this.
Source of Capital Matters
The difference to be noted between the first and second purchase is visible in the capital funding source. It paid for the first $425 million purchase with cash straight from the balance sheet. Michael Saylor wisely analyzed the macroeconomic factors on various occasions which were perfectly beneficial foreseeing the inflation and alternatives lack.
This new episode of purchase is being funded by a large capital raise, offering 0.750% Convertible Senior Notes due in 2025. This would bring a potential change in the capital structure of the company. It could be said that this company was impressed by the investment thesis of the first bitcoin investment.
Although recently Bitcoin is considered to be the best option for being an inflation hedge, still there is no guarantee that this correlation will hold. It is a fact that if any of the inflation hedges are not pre-programmed like inflation-linked bonds, they keep on holding the position of being dummy inflation hedges only after a long history of existence .
Bitcoin could not be said to be the most trustworthy inflation hedge as its history is still too short. We can also hope that the renewed investment in bitcoin would hold a different nature than the first, separating its ways away from the macroeconomic motivation towards a more active, speculative investment.
Some people side the view that losers Some traders say that losers rule over losers and winners rule over winners. Seeing this verdict in MicroStrategy’s first investment which is up more than 80%, an aggressive averaging up seems to be the right choice.
If we observe the MicroStrategy stepping in to invest in Bitcoin, we understand that it is a far better decision to invest in Bitcoin as compared to merely hold pure bitcoin. This also cast a positive impact on the stock.
Updated Scenario Analysis
According to a recent analysis, the company is now stuck with $650 million in debt and only $50 million per year in cash from operations. It also has notes due in 2025. Though it would have plenty of time to accumulate enough cash to repay the notes. But it is all time faced with a lurking fear of the heavy reputational risk on the company. It also ended in putting more pressure on its ability to raise money, and also on attracting and retaining core business customers.
Can we predict Bitcoin’s price to reach $100,000? The stock would appreciate far more than the $560. It is high time to encourage the company to take on new money. Initially, the conversion rate for the notes is 2.5126 shares of MicroStrategy class A common stock per $1,000 which is only the principal amount of notes.
This is also to an initial conversion price of approximately $397.99 per share. It shows a premium of approximately 37.5% over the last reported sale price of $289.45 per share of MicroStrategy class A common stock on The Nasdaq Global Select Market on December 8, 2020.”
In the second episode of the investment, Bitcoins price is also high at $18000. It is better to analyze this decision, from the point of view of MicroStrategy and its CEO Michael Saylor.
This new capital structure makes the whole process of investment in MicroStrategy much more similar to a pure bitcoin investment. This investment has also lost its peculiar specialty as a low-risk exposure to bitcoin. The company is over-exposed to bitcoin. It is a good thing but in the long run, it puts the company at the risk of bringing bitcoin’s price to $0.