We hear a lot about #MicroStrategy selling #bonds (borrowing money) to buy #Bitcoin, which seems like Michael Saylor is taking a risk, but do you really understand what they are doing?
MicroStrategy frequently announces plans to sell bonds to buy more Bitcoin, with a typical maturity date of 8 years later (2032), giving Michael Saylor two Bitcoin cycles.
In March of this year, they sold $603 million in bonds with an annual interest rate of only 0.875%, and in July of this year, they issued $700 million in bonds with an annual interest rate of only 2.25%... extremely low, nearly borrowing without interest. So, why do investors buy bonds with such low interest rates instead of government bonds with annual interest rates of 5%? And why are shareholders allowing Michael Saylor to continue borrowing money to buy bitcoin?
The answer is that they are more concerned with being able to convert the bonds into MicroStrategy shares than with the interest rate. MicroStrategy shares are up 124% year to date, 315% in the last year, and more than 1,113% since they began purchasing Bitcoin in August 2020. No other stock has been able to match MicroStrategy's growth, including NVIDIA (up 1,049% during the same period).
This percentage of profit is what investors are concerned about. They want the option to convert the bonds into shares if the shares rise; otherwise, when the maturity date arrives, they will receive their capital back, assuming the business has not made a profit. So investors either receive their capital back or can convert to shares at a significant profit, with no loss in either case.
In June of this year, MicroStrategy converted $650 million in bonds into stock.
So, what does MicroStrategy receive?
They obtain capital without interest to purchase BTC, and if their stock continues to rise, current shareholders can sell their shares for a profit. Bond investors convert their bonds into stocks; they are not required to repay the capital immediately, and he has 8 years to wait for the price to rise (2 cycles).
As you can see, Michael Saylor is anything but simple. To put it another way, MicroStrategy is "printing money" by exchanging their own stocks for Bitcoin. If you believe in Bitcoin, this is the quickest way to accumulate if you own a company listed on the stock exchange, which is why other companies, such as MetaPlanet, have begun to imitate.
However, everything has risks, and the risk in this system is that Bitcoin fails and MicroStrategy goes bankrupt. However, as long as Bitcoin exists, Michael Saylor will continue to acquire it.
Credit: Thuan Capital
