Mining Giants Follow MicroStrategy’s Bitcoin Strategy, but at What Cost?

MicroStrategy, with its massive holding of 423,650 BTC, is the company with the largest Bitcoin stash. Its debt-financed Bitcoin purchase strategy has been highly successful, with the total value of its BTC holdings now reaching $42.45 billion. Reports suggest that this strategy, led by MicroStrategy’s executive chairman Michael J. Saylor, has influenced major Bitcoin mining companies like Marathon Digital and Riot Platforms to follow suit.

Let’s explore how these companies are adopting a similar approach.

What Mining Giants Are Doing

Reports indicate that Marathon Digital and Riot Platforms are planning to issue convertible notes to purchase Bitcoin. This suggests that the two mining companies are shifting focus from traditional mining to accumulating Bitcoin for long-term gains.

Marathon Digital (MARA) currently holds about 40,435 BTC, worth $4.05 billion, while Riot Platforms (RIOT) holds at least 10,019 BTC, valued at $1 billion.

MicroStrategy has nearly become a Bitcoin treasury company. Its debt-financed Bitcoin purchase strategy has proven to be a success, with the company’s stock (MSTR) rising by over 71.71% since November 5.

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Challenges for MARA and RIOT

Firstly, as MARA and RIOT are majorly mining companies, the latest Bitcoin halving event considerably reduced what they could earn from their business activities. 

Secondly, mining is now a highly competitive business. Reports indicate that MARA and RIOT face tough competition. 

Finally, both are not as compelling as MicroStrategy in terms of stock performance. This year, MSTR has grown by over 474.13%, while MARA and RIOT have declined by over -1.5% and -19.88%, respectively. 

Recently, activist investor Starboard Value advised Riot to diversify their business activities, suggesting it to rRecently, activist investor Starboard Value advised Riot to diversify its business activities, suggesting that it reduce its reliance on Bitcoin mining.

This reflects growing concerns from investors about the sustainability of the debt-financed Bitcoin strategy.

Debt-Financed Bitcoin Strategy

Interestingly, Riot’s upcoming convertible notes issuance comes with a lower premium compared to MicroStrategy’s. However, many experts are skeptical about the long-term viability of debt-financed Bitcoin purchases. Some argue that mining companies should focus on increasing their Bitcoin holdings through traditional methods rather than relying on debt.

While MicroStrategy’s aggressive Bitcoin strategy has set an example for others, it is not without its critics. With companies like Riot and Marathon adopting similar strategies, the long-term success of this approach remains uncertain.

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