As a seasoned crypto investor with a decade of experience under my belt, I find MicroStrategy’s ambitious “21/21 Plan” intriguing yet fraught with challenges, as highlighted by CoinShares’ analysis. While their transformation into the world’s largest corporate Bitcoin holder has been impressive, their success hinges on factors that are anything but certain – continued favorable financing conditions and sustained demand for convertible notes.
In a fresh evaluation by the European digital asset investment firm CoinShares, it’s stated that MicroStrategy’s recently unveiled “21/21 Plan” to allocate $42 billion in Bitcoin over a period of three years may encounter several substantial challenges.
On October 30, MicroStrategy Inc. (Nasdaq: MSTR) unveiled their Q3 2024 financial report, emphasizing their new Bitcoin purchasing approach and hurdles encountered in their software sector.
As a researcher focusing on cryptocurrency, I recently came across an interesting development: The company renowned for its considerable Bitcoin reserves has unveiled a strategic three-year plan dubbed “21/21.” This ambitious initiative aims to amass a capital inflow of $42 billion. Breaking it down, the goal is to raise $21 billion through equity and an additional $21 billion via fixed-income securities. The ultimate objective, as expressed by CEO Phong Le, is to expand our Bitcoin treasury with this capital infusion, intending to enhance the yield derived from our Bitcoin holdings.
In Q3 of my research, MicroStrategy bolstered its treasury through issuing equity and debt to the tune of $2.1 billion, a move they attributed to their strategic approach. Remarkably, our Bitcoin holdings grew by 11%, culminating in approximately 252,220 bitcoins as of September 30. This translates to a substantial market value of around $16.007 billion for our Bitcoin reserves.
As a researcher delving into MicroStrategy’s Bitcoin strategy, I’ve found that their year-to-date BTC yield currently stands at an impressive 17.8%. However, it’s important to note that they have adjusted their long-term yield expectation for the years 2025 to 2027, setting a new target between 6% and 10% annually.
Alexandre Schmid, an Index Fund Manager at CoinShares, and Satish Patel, an Investment Analyst at the same company, point out in their analysis that MicroStrategy’s metamorphosis from a small business intelligence firm into the world’s leading corporate Bitcoin owner is truly impressive. By October 2024, its market capitalization had skyrocketed more than 50 times, surpassing $50 billion.
According to CoinShares, the investment strategy has been highly profitable thus far. Specifically, MicroStrategy’s Bitcoin assets are currently valued at more than $18.6 billion, while their initial cost was only around $9.9 billion. This means that the value of these Bitcoin holdings is nearly double (around 200%) what MicroStrategy originally paid for them.
Based on CoinShares’ analysis, MicroStrategy’s significant success is largely due to its skill in obtaining low-cost loans via convertible bonds, managing to secure over $4.2 billion at an average interest rate of merely 0.81%. The analysts point out that Bitcoin’s volatility played a key role in making these convertible bonds more appealing to investors.
Nevertheless, the CoinShares report highlights several potential hurdles for MicroStrategy’s expansive growth agenda. The authors argue that the strategy’s success hinges significantly on continued advantageous financing terms and a persistent appetite for convertible notes. They point out that recent coupon rates have been increasing from their initial zero-coupon state.
According to the experts at CoinShares, one major risk associated with MicroStrategy is that it might struggle to sell its Bitcoin holdings without potentially losing its market value advantage. Furthermore, these analysts highlight a substantial tax issue, as the company has unrealized gains worth $7.7 billion that could be subjected to future taxes.
According to the CoinShares report, there’s an increasing discrepancy between MicroStrategy’s primary software operations and its Bitcoin assets. This could indicate a necessity for the company to explore innovative methods to produce revenue from its Bitcoin holdings to meet its financial commitments.
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2024-11-06 13:57