Volatility as Key: MicroStrategy Relies on Sophisticated Convertible Bond Strategy

Investors seeking safer investments might be excited by MicroStrategy's convertible bonds. These not only offer an attractive yield through interest payments but also provide protection against losses, as they can be repaid in cash at certain dates. Despite the unusually high risk and high volatility of the company's bitcoin-related business model, there is a strong demand for these bonds. Notably, MicroStrategy was able to place a significant number of bonds at an interest rate of 0%, even though the benchmark interest rates in the U.S. are higher. This reflects investors' confidence in the company, who do not appear deterred by the high implied volatility of MicroStrategy's shares. Experts use this volatility to achieve substantial gains through skillful trading behavior. MicroStrategy has conducted five convertible bond offerings in the past year and currently has six outstanding bonds with varying maturities until 2032. These low interest rates allow the company to sell equity at a significant premium compared to the current share price and pay only about 35 million dollars in interest annually. However, significant implied volatility could further boost sales figures, as predicted by Greg Magadini of Amberdata. At the same time, other companies like Semler Scientific are trying to apply similar strategies to capitalize on the attractiveness of bitcoin investments. For some bitcoin mining companies like MARA and Riot Platforms, investing in bitcoin is the primary goal of fund-raising, while others like Core Scientific aim to finance their expenses and acquisitions. However, the strategy also carries risks: a significant drop in stock prices could lead bondholders to prefer cash repayment, potentially putting companies in financial distress. MicroStrategy has strategically staggered its convertible bonds to ensure balanced risk over the years. This approach provides the company with flexibility, allowing it to renegotiate its bonds if necessary. As a pioneer in this field, MicroStrategy could offer valuable guidance to less experienced newcomers like the bitcoin mining companies or Semler, should they choose to venture into this area.