MicroStrategy, Virginia based business intelligence company, is the first publicly traded company to acquire bitcoin as part of its capital investment plan. Since August, when the company announced it will turn its conventional cash reserves and bond investments into a digital wallet full of bitcoin tokens, MicroStrategy stock has been following along with the rising price of bitcoin. MicroStrategy didn’t stop there: for the sole purpose of acquiring even more bitcoin, it also took on $650 million of new investment in December.
A total of 70,470 bitcoin were kept by MicroStrategy by the end of December 2020. The company invested $1.13 billion on bitcoin and at today’s bitcoin rates which is worth $2.6 billion.
Cryptos are notable for its rising growth and volatility. We know that bitcoin was designed as a payment system, but today, we use it totally differently: traders buy it, not with the will to use it, but to exchange it again for a higher price. This would not be any different from other financial instruments or FOREX trading activities if it were not because we utilize bitcoin as if it were gold: to store value. A firm believer of the above is Michael Saylor, founder of MicroStrategy.
$650 Million in 6 months
Saylor has announced that his firm would explore bitcoin acquisition a little over a half a year ago. Since then, it has poured $650 million in bitcoin purchases. In fact, by Christmas, the company had announced over $1 Billion in crypto purchases for the year 2020. The firm had even issued debt to acquire 70,470 bitcoin for an average acquisition price of approximately $20000, a move highly scrutinized but fully supported by Michael Saylor.
Other big players believe that MicroStrategy’s approach of converting its entire cash balance in bitcoin, is good for business. Morgan-Stanley has invested $500 Million in MicroStrategy and has categorized the decision as a “No-Brainer”. Hence, the multinational bank has gained exposure in bitcoin without getting a single token, and others seem to follow.
MicroStrategy’s stock price has undergone from $140 per share in August to an upswing and stands now at nearly $600 per share. This means that, since the company started to purchase bitcoin, its stock has experienced increase in price.
As of now, with shares up over 350 % in less than six months, the policy of investing in bitcoin has paid off handsomely for MicroStrategy.
Are we living in a crypto bubble?
Bitcoin has been put to scrutiny many times. Many believe that we are in the middle of a crypto bubble or that, in fact, we have been quite a while on it.
According to economist David Rosenberg, investors do not understand how crypto supply works, and that poses a danger itself. Others find the behavior of the market to be similar to the dot-com bubble from the early 2000’s and suggest caution.
The fact that most countries are still drafting financial regulation for digital assets and crypto, may be one of the reasons behind bitcoin’s popularity. Many think it is an easy and fast way to generate wealth, which can be interpreted as the perfect recipe to create a financial bubble.
Michael Saylor is the co-founder of MicroStrategy, a company that provides business intelligence through software. Because of his personality and the fact that MicroStrategy is a leading company in its field, we are used to seeing him on the news. However, his aggressive investment in crypto is a matter of distrust for many.
The Securities and Exchange Commission (SEC) has accused Saylor of inaccurate reporting of financial results in the late 90’s. Allegedly, he was part of a scheme that disguised the company as profitable when it was experiencing losses. The litigation seemed to be solved with an $11 Million settlement paid to the SEC. This stain in MicroStrategy’s CEO past, raises caution about its recent bitcoin operations.
Nevertheless, many investors treat the firm’s stock as an ETF, since they think that holding shares in the tech giant helps them to gain exposure in bitcoin. This approach puts the company under the scrutiny and the radar once again. Whether MicroStrategy’s investment activities are infallible remains to be seen. One thing is for sure: Saylor takes the definition of bitcoin as a form to store value to another level.
Saylor said “Bitcoin is a bank in cyberspace, run by incorruptible software, offering a global, affordable, simple, & secure savings account to billions of people that don’t have the option or desire to run their own hedge fund.” Whether MicroStrategy’s investment activities are infallible remains to be seen. One thing is for sure: Sailor takes the definition of bitcoin as a form to store value to another level.
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— Fyggex (@fyggexchange) August 12, 2020
Image: Gerd Altmann
*Disclaimer: Fyggex, does not give any guidance, advice or recommendations to neither invest or not in any available normal currency or cryptocurrency directly or indirectly via any trading platform, exchange or provider. Our sole purpose is to make you aware of the related real or potential risks and opportunities so that you can make your own research prior to any financial decisions you may want to take. Past performance and position are not a guarantee of risk-free future returns.