It sounds like the script for a Hollywood movie: A once unremarkable software company rises to the Olymp of the Nasdaq 100 thanks to bold Bitcoin bets. Behind this remarkable success, however, lies more than just luck – it is a risky mix of financial strategy, market volatility, and boundless optimism.
The Bitcoin King of MicroStrategy
Michael Saylor, the founder and former CEO of MicroStrategy, is now considered a prophet of Bitcoin. Few would have believed in such a radical shift in his business strategy a few years ago. Today, Saylor sees himself as the architect of a "Bitcoin treasury" whose value is said to be immeasurable.
Since 2020, MicroStrategy has raised almost $20 billion, mainly through selling shares and convertible bonds, to buy Bitcoins. This year alone, the shares saw an increase of over 400%, catapulting the company's market capitalization to $80 billion — despite Bitcoin holdings worth "only" $41 billion.
Financial Acrobatics: Convertible Bonds and a Clever Premium
At the center of this success story are convertible bonds. These instruments, which function like a hybrid of stock and bond, have proven to be an ideal tool for MicroStrategy. They attract investors with a fixed coupon and the opportunity to convert into shares when the stock price rises.
It is a brilliant financial acrobatics," praises a portfolio manager. The trick: MicroStrategy sells its shares at a premium, which finances the purchase of more Bitcoins – a kind of perpetual motion machine as long as prices rise.
But here lies the risk. If Bitcoin crashes, these debts could become a burden. Critics are already talking about a "massive dollar short position," as the strategy heavily depends on a continued rise in Bitcoin prices.
Leveraged Products: Volatility as Friend and Foe
The story becomes even more absurd due to the influence of leveraged ETFs, which further amplify the volatility of MicroStrategy stock. Funds like the Defiance Daily Target ETF double the stock's price movements and force their managers to buy massive stock positions during price increases – driving the spiral even further.
But this game with volatility is a double-edged sword. A massive Bitcoin decline or a general market correction could destabilize the fragile balance. For critics like Barry Bannister, chief strategist at Stifel, it's only a matter of time: "Those who buy assets built on air should be prepared to see their money disappear.
The Dark Clouds: Insider Sales and Falling Premiums
Although Saylor and his team publicly profess unwavering confidence in Bitcoin, insider sales raise questions. This year, executives from MicroStrategy have sold shares worth $570 million. This contradiction remains a sore point for investors who doubt Saylor's convictions.
At the same time, a revaluation of the stock – for example, through lower premiums on its Bitcoin holdings – could significantly slow its price development. Already, the stock has fallen by 40% from its peak, while Bitcoin has only decreased by 5%.
Fascination and Risk of a Century Bet
Michael Saylor has undoubtedly made history with MicroStrategy. Whether this story ends with a happy ending or serves as a lesson in the dangers of financial hubris remains to be seen. What is certain: MicroStrategy has changed the financial world – with a daring bet that balances on the tightrope between innovation and risk.
