MicroStrategy Buys $250M in Bitcoin, Calling the Crypto ‘Superior to Cash’

[fillippone]

First, the news:

MicroStrategy Adopts Bitcoin as Primary Treasury Reserve Asset

TYSONS CORNER, Va.--(BUSINESS WIRE)--MicroStrategy® Incorporated (Nasdaq: MSTR), the largest independent publicly-traded business intelligence company, today announced that it has purchased 21,454 bitcoins at an aggregate purchase price of $250 million, inclusive of fees and expenses. The purchase of Bitcoin cryptocurrency was made pursuant to the two-pronged capital allocation strategy previously announced by the company when it released its second quarter 2020 financial results on July 28, 2020.

Source link: https://www.businesswire.com/news/home/20200811005331/en/MicroStrategy-Adopts-Bitcoin-Primary-Treasury-Reserve-Asset

This is the main statement:

“Our investment in Bitcoin is part of our new capital allocation strategy, which seeks to maximize long-term value for our shareholders,” said Michael J. Saylor, CEO, MicroStrategy Incorporated. “This investment reflects our belief that Bitcoin, as the world’s most widely-adopted cryptocurrency, is a dependable store of value and an attractive investment asset with more long-term appreciation potential than holding cash. Since its inception over a decade ago, Bitcoin has emerged as a significant addition to the global financial system, with characteristics that are useful to both individuals and institutions. MicroStrategy has recognized Bitcoin as a legitimate investment asset that can be superior to cash and accordingly has made Bitcoin the principal holding in its treasury reserve strategy.”

Coindesk realunched the news:


MicroStrategy Buys $250M in Bitcoin, Calling the Crypto ‘Superior to Cash’

Publicly traded business intelligence firm MicroStrategy purchased 21,454 bitcoin on Tuesday, effectively pouring all $250 million of its planned inflation-hedging funds into the digital currency.

• Disclosing its bitcoin buy alongside an equivalent stock buyback in a Tuesday Securities and Exchange Commission filing, MicroStrategy, a Nasdaq-listed software firm worth over $1.2 billion, said the cryptocurrency provided a "reasonable hedge against inflation" in a press statement shared with CoinDesk.
• “This investment reflects our belief that bitcoin, as the world’s most widely adopted cryptocurrency, is a dependable store of value and an attractive investment asset with more long-term appreciation potential than holding cash," said CEO Michael J. Saylor.
• Saylor cited forces working to weaken fiat currencies – COVID-19, global quantitative easing measures, political and economic uncertainty – but also the technical and qualitative aspects that he said give the bitcoin blockchain strength.
• “We find the global acceptance, brand recognition, ecosystem vitality, network dominance, architectural resilience, technical utility and community ethos of bitcoin to be persuasive evidence of its superiority as an asset class for those seeking a long-term store of value," Saylor said.
• The capital allocation quickly fulfills Saylor's late July promise to shareholders that his company, which he founded in 1989, would buy back $250 million in stock and invest an additional $250 million in gold and bitcoin over the next 12 months. The belief was that these and other "alternative investments" would protect MicroStrategy's dollar-heavy balance sheet.
• It is now clear that half of the $500 million bet turns entirely on bitcoin. MicroStrategy "accordingly has made bitcoin the principal holding in its treasury reserve strategy," Saylor said.

Source link: https://www.coindesk.com/microstrategy-bitcoin-buy-protects-against-fiat-inflation


My Commentary:
This is so big: A publicly traded  firm decided to invest half of his 500 millions excess cash reserves buying bitcoin, deliberately dumping the ever value loser, inflationary, exponentially printed fiat currency, to embrace the superior hard money, digital gold, Bitcoin.
This is so bullish. A new era for Bitcoin in the path of a recognition as a superior Store Of Value.


A few tweet about this:

Gabor Gurbacs

Publicly traded company MicroStrategy adopts #Bitcoin as a treasury reserve asset to hedge against fiat inflation. MicroStrategy  allocates $250mm to Bitcoin. This is a big deal and good to see #Bitcoin used as intended: hard money/savings instrument.

https://twitter.com/gaborgurbacs/status/1293153751549784064

PlanB

#Phase5

https://twitter.com/100trillionUSD/status/1293174076299673600?s=20


Barry Silbert, GrayScale CEO:

MicroStrategy, a $1.2 billion company, just turned itself into a publicly-traded bitcoin play. Smart

Gradually, then suddenly

https://twitter.com/barrysilbert/status/1293151330467565570?s=20

https://twitter.com/barrysilbert/status/1293162827478335488?s=20


WSJ reported the news, after a few weeks:

‘Cash Is Trash,’ So Let’s Bet $425 Million on Bitcoin

MicroStrategy could have gotten rid of its excess cash by paying a big dividend or buying back a ton of stock. Instead, the company made a big digital currency bet.

MicroStrategy’s Mr. Saylor says the primary objective of buying bitcoin isn’t to make the stock go up, but to keep the company’s purchasing power from going down.

Thanks to the Federal Reserve’s immense intervention in the economy, the U.S. monetary supply is soaring—by one measure, up more than 20% this year. Mr. Saylor expects that pace to continue at 10% or 15% annually, not just in the U.S. but globally.

“We realized that cash is trash,” he says, “and we needed either to shrink the capital structure or move our cash into something that is going to float on the flood of liquidity and not sink under the flood of liquidity.”

Second Buy:

https://twitter.com/michael_saylor/status/1305850568531947520?s=20


Third Buy:


https://twitter.com/michael_saylor/status/1334990791496884224?s=20


Here a brief recap of their holdings: they bought very close to the ATH, still they are 60% in the money!



[LINK]




A few words about Micheal Saylor.


Micheal Saylor himself has been interviewed by Antony Pompliano in his Podcast:

The Pomp Podcast #385: Michael Saylor On Buying Bitcoin With His Balance Sheet

Youtube Version:
The Pomp Podcast #385: Michael Saylor On Buying Bitcoin With His Balance Sheet

This is an episode of The Pomp Podcast with host Anthony "Pomp" Pompliano and guest, Michael Saylor, an entrepreneur and business executive, who co-founded and leads MicroStrategy, a company which provides business intelligence, mobile software, and cloud-based services. He has become well known in the Bitcoin community for using the company's ibalance sheet to purchase more than $400 million of Bitcoin.

In this conversation, we discuss how Michael built MicroStrategy, what his $500 million dilemma earlier this year was, and why he choose to put more than $400 million into Bitcoin with the company's balance sheet.

Also thanks to @lucius, a nice article from Bloomberg, detailing a few interesting bits.

Firstly: Saylor is not a bitcoin zealot:
CEO Says Bitcoin Is Safer After Moving Firm’s Cash to Crypto

Even so, Saylor said he’s not a crypto diehard. If bond yields jump, for instance, he said he won’t hesitate to dump the cryptocurrency, though he has no immediate plans to sell.

“We can liquidate it any day of the week, any hour of the day,”Saylor said. “If I needed to liquidate $200 million of Bitcoin, I believe I could do it on a Saturday. If I took a haircut, I believe it would be 2%.”

Well, we knew that, as for sure he elaborated some thought from 2013:




Another important bit of information, I was already aware of is settlement with the SEC:

This isn’t the first time Saylor has garnered headlines. He lost billions in personal wealth after the shares tumbled when the company was accused by the U.S. Securities and Exchange Commission of overstating results. Saylor reached a settlement in 2000 without admitting or denying guilt.

More information here.

Micheal Saylor owns 67% of voting rights of MicroStrategy. Just remember that. When he says MicroStrategy decided to" he's actually saying "I decided to".

From their SEC Filing:

Because of the rights of our two classes of common stock, and because we are controlled by our existing holders of class B common stock, these stockholders could transfer control of MicroStrategy to a third party without the approval of our Board of Directors or our other stockholders, prevent a third party from acquiring MicroStrategy, or limit your ability to influence corporate matters
We have two classes of common stock: class A common stock and class B common stock. Holders of our class A common stock generally have the same rights as holders of our class B common stock, except that holders of class A common stock have one vote per share while holders of class B common stock have ten votes per share. As of February 2, 2009, holders of our class B common stock owned 2,770,244 shares of class B common stock, or 75.2% of the total voting power. Michael J. Saylor, our Chairman, President and Chief Executive Officer, beneficially owned 399,800 shares of class A common stock and 2,429,582 shares of class B common stock, or 67.1% of the total voting power, as of February 2, 2009. Accordingly, Mr. Saylor is able to control MicroStrategy through his ability to determine the outcome of elections of our directors, amend our certificate of incorporation and by-laws and take other actions requiring the vote or consent of stockholders, including mergers, going-private transactions and other extraordinary transactions and their terms.

Source:
https://ir.microstrategy.com/node/17726/html

Recapping with a simple image:



Saylor controls 67.1% of the voting capital of the company. Hence he can dictate everything in the company.
Of course this can be viewed as a call to stability and focus on business, as they stated in some interviews, but this is actually relevant information not to be ignored while reading the statements in the first paragraph.


Also worth Noticing Salyor himself owns many bitcoins.
 


https://twitter.com/michael_saylor/status/1321422012380753921?s=20

Again, the point he informed the managers, is laughable.

[1714002374]

1714002374

[1714002374]

1714002374

[gentlemand]

Is there any indication anywhere that they bought actual tangible Bitcoin? Lots of people started to froth when Paul Tudor Jones made his announcement but of course it was nothing but futures.

[exstasie]

Is there any indication anywhere that they bought actual tangible Bitcoin?

"MicroStrategy...announced that it has purchased 21,454 bitcoins..."

Sounds like it to me, but who knows?

Lots of people started to froth when Paul Tudor Jones made his announcement but of course it was nothing but futures.

Institutional interest in BTC futures is nothing? Seems like a pretty big deal in terms of legitimacy, if nothing else. It would be silly to assume institutional traders are all going to jump balls deep into actual BTC custody.

[gentlemand]

Institutional interest in BTC futures is nothing? Seems like a pretty big deal in terms of legitimacy, if nothing else. It would be silly to assume institutional traders are all going to jump balls deep into actual BTC custody.

It's the difference between just another play on their legacy dashboard and delving deeper but I totally get why they'd stick with what they know if that old stager makes it available to them. Obviously in this case with such a huge portion of their funds it's a proper macho move.

[The Sceptical Chymist]

This is so big: A publicly traded  firm decided to invest half of his 500 millions excess cash reserves buying bitcoin, deliberately dumping the ever value loser, inflationary, exponentially printed fiat currency, to embrace the superior hard money, digital gold, Bitcoin.

I agree.  MicroStrategy isn't a huge company in terms of market cap ($1.3 billion), but the fact that they'd buy a huge amount of bitcoin to hold as its "treasury reserve asset" (I don't know exactly what that means) is indeed big news for bitcoin.  What I'm wondering is what their shareholders are going to think about it, and I'm putting MSTR on my stock watchlist.  I'd never heard of them before, but it looks like they've been around for years and their stock has done pretty well over the past decade.

And lol, reading the summary of what the company does, I can barely understand a word of it:

MicroStrategy Incorporated is a provider of enterprise software platforms around the world. The Company is engaged in the design, development, marketing and sales of its software platform through licensing arrangements, and cloud-based subscriptions and related services. It focuses on providing enterprise customers with software platform and services for deploying intelligence applications. Its platform, MicroStrategy 10, consolidates analytics and mobility in a single platform, available both as on-premise software and as a hosted service offering in MicroStrategy Cloud. Its enterprise platform combines business intelligence functionality with data discovery, mobile analytics and identity intelligence generated by digital credentials. MicroStrategy 10 consists of MicroStrategy Analytics, MicroStrategy Mobile and Usher. MicroStrategy Analytics offers solutions to organizations to analyze a range of data and distribute actionable business insight throughout an enterprise.

**Quote from TD Ameritrade**

This is so bullish. A new era for Bitcoin in the path of a recognition as a superior Store Of Value.

Maybe.  It would be far more bullish had the company been Microsoft or Amazon.  And I'm not sure how big a story this is overall.  You and I certainly find it to be incredible, but that doesn't mean the market is going to react to it at all.  We'll see.

Is there any indication anywhere that they bought actual tangible Bitcoin? Lots of people started to froth when Paul Tudor Jones made his announcement but of course it was nothing but futures.

The article says they bought a specific number of bitcoin, so I'd infer that it's actual bitcoin and not a derivative.

[cAPSLOCK]

I wonder who is handling the custody of this for them.  That was probably the hardest part of the whole thing for them to work out.

I figure it could be Greyscale, or one of the exchanges (Gemini? Kraken? Coinbase?).  Could be Bakkt? Of course they could do it themselves, but that is a fairly serious security undertaking when $250MM is the amount of value.

Looking at the news I do not see that detail.

[gentlemand]

I wonder who is handling the custody of this for them.  That was probably the hardest part of the whole thing for them to work out.

I figure it could be Greyscale, or one of the exchanges (Gemini? Kraken? Coinbase?).  Could be Bakkt? Of course they could do it themselves, but that is a fairly serious security undertaking when $250MM is the amount of value.

If it's actual coin then one of your list no doubt. I'd love to sit in on the pitch these custody places give them. A lot of people will come to them knowing nothing and nothing about their specific company either. There's no possibility of any of it being insured either.

[DoubleEdgeEX]

I wonder who is handling the custody of this for them.  That was probably the hardest part of the whole thing for them to work out.

I figure it could be Greyscale, or one of the exchanges (Gemini? Kraken? Coinbase?).  Could be Bakkt? Of course they could do it themselves, but that is a fairly serious security undertaking when $250MM is the amount of value.

Looking at the news I do not see that detail.

Yep, that custody question is a good one. Maybe BitGo as another option. The press statement they recently came up with looked as if they know what they are doing so I assume they will come up with a name soon. It will also benefit the custody provider big time. But maybe it´s just a random Metamask wallet haha

[Plutosky]

Yesterday MicroStrategy stock price went up by 9.12%, despite Nasdaq ended the session in the red.
Markets seem to appreciate.

[fillippone]

Is there any indication anywhere that they bought actual tangible Bitcoin? Lots of people started to froth when Paul Tudor Jones made his announcement but of course it was nothing but futures.

Interesting, I missed that bit, do you have any source for that?

This is so big: A publicly traded  firm decided to invest half of his 500 millions excess cash reserves buying bitcoin, deliberately dumping the ever value loser, inflationary, exponentially printed fiat currency, to embrace the superior hard money, digital gold, Bitcoin.

I agree.  MicroStrategy isn't a huge company in terms of market cap ($1.3 billion), but the fact that they'd buy a huge amount of bitcoin to hold as its "treasury reserve asset" (I don't know exactly what that means) is indeed big news for bitcoin.  What I'm wondering is what their shareholders are going to think about it, and I'm putting MSTR on my stock watchlist.  I'd never heard of them before, but it looks like they've been around for years and their stock has done pretty well over the past decade.

Every firm has cash, this cash is managed by a Treasury department, who is in charge of maximising the return on this cash (think about a firm based in Switzerland, where you actually pay money for your cash balance in your saving account) investing it in low risk bonds (t-bills) Short money market operations or FX operations to minimise the exposure to different currencies..
Every firm has a "reference" currency, mostly based on the location of headquarters (AAPL has inflows in many different currencies, but ultimately the balance sheet are in USD, so they try to manage all their cash in USD terms). Well, apparently, MicroStrategy choose to elect Bitcoin as their "base" treasury asset. This means, probably, all the resto f their business is going to depreciate massively against their cash balance. (hopefully...).

Regarding the shareholders part, that was part of a pre-announced part of capital allocation, approved by the shareholders (they had 500 mios reserves, half of those in BTC, half i shares buyback).

And lol, reading the summary of what the company does, I can barely understand a word of it:
<...>

Another description:

MicroStrategy Incorporated provides business intelligence software and related services. The Company provides a platform that enables departments and enterprises to deploy web-based reporting and analysis solutions. MicroStrategy also offers consulting, training, and support services. MicroStrategy serves retail, finance, telecommunications, insurance, and healthcare sectors.


Extended Company Description  (Source: Hoover's Inc., a Dun & Bradstreet Company)

 
OVERVIEW

   MicroStrategy knows you need the details to make a good plan. The company's cloud-based business intelligence software addresses functions such as building reports and dashboards, managing mobile applications, and capitalizing on social media. Specific analytics modules include human resources management, Web traffic analysis, and sales and distribution. It sells to many of the world's largest companies, such as Aetna and eBay, as well as midsized companies and government agencies, such as NASA and the US Army. MicroStrategy also offers consulting and support services. Founded in 1989, MicroStrategy has operations in about 25 countries.

TLDR: Microstrategy builds software that organise data collected all over the firm, so that dumb manager can take smart decision based on some tables they see. Competitor : SAP, I don't know if you are familiar with them.
 

This is so bullish. A new era for Bitcoin in the path of a recognition as a superior Store Of Value.

Maybe.  It would be far more bullish had the company been Microsoft or Amazon.  And I'm not sure how big a story this is overall.  You and I certainly find it to be incredible, but that doesn't mean the market is going to react to it at all.  We'll see.

IT's a start, of course other might follow. Maybe Facebook will do the same with their Libra, one day.

I wonder who is handling the custody of this for them.  That was probably the hardest part of the whole thing for them to work out.

I figure it could be Greyscale, or one of the exchanges (Gemini? Kraken? Coinbase?).  Could be Bakkt? Of course they could do it themselves, but that is a fairly serious security undertaking when $250MM is the amount of value.

If it's actual coin then one of your list no doubt. I'd love to sit in on the pitch these custody places give them. A lot of people will come to them knowing nothing and nothing about their specific company either. There's no possibility of any of it being insured either.

I strongly doubt that. Those are exchanges, and their business is the exchange of Cryptoassets, not the custody. I expect the elected venue for the custody to be BitGo, who is the leader in the custody sector. Please note that BitGo is insured on their funds, as some of the exchanges (Gemini and Binance) are, with varying degree of security.
This is only my tough, I didn't read anything about that, for now.

[Poker Player]

This is so bullish. A new era for Bitcoin in the path of a recognition as a superior Store Of Value.

Maybe.  It would be far more bullish had the company been Microsoft or Amazon.  And I'm not sure how big a story this is overall.  You and I certainly find it to be incredible, but that doesn't mean the market is going to react to it at all.  We'll see.

There always has to be someone to open the path. Like the first guy who bught pizza with bitcoin.

Now, if a company is thinking of trading fiat for bitcoin to have as a reserve of value, it's not going to be the first. Let's hope MicroStrategy is the first of many.

[fillippone]

Yesterday MicroStrategy stock price went up by 9.12%, despite Nasdaq ended the session in the red.
Markets seem to appreciate.

I do agree, but don't forget that yesterday they also performed a 250 Millions buyback of their shares. This is not peanuts given their total Market Cap.

[allahabadi]

I'd be vary of such orgs coming into btc trading... Sorta defeats the purpose of it surviving as a currency and only as a trading mechanism; which is not what it should primarily be.

[Coyster]

I'd be vary of such orgs coming into btc trading... Sorta defeats the purpose of it surviving as a currency and only as a trading mechanism; which is not what it should primarily be.

Wary you mean? The bitcoin network actually needs companies like MicroStrategy and even bigger ones to join the network, I don't see any cons in it, it appreciates adoption and encourages other establishments to also come in. Btc's purpose btw isn't to survive as a currency, and I don't think it matters at all what people or establishments do with btc when they buy it. That being said, if bitcoin is to serve as more of a currency like you said, more adoption is of course needed and that can only come with more of this kind of news.

[fillippone]

Nice U-turn, Micheal:


https://twitter.com/michael_saylor/status/413478389329428480



https://twitter.com/michael_saylor/status/1293141856700768257

From declaring Bitcoin a doomed asset to embracing it buying the 0.1% or the total supply. Better than being stubbornly wrong.

[rdbase]

^^ These guys are a publicly listed company so they need to be as transparent as possible.
Or else their investors would get their pitchforks out in protest if they sniff even one bit of shady dealing with any of their forecasts for the future of their assets.
Biggest intelligence firm in the world?
Well if they have the brains then BTC is a safe bet to gamble on if its just going to end up as successful as online gambling.

[tulpe123]

There are too many big trusts one the market already. They can control the market, isn't it?

[thecodebear]

Good for that company. This will no doubt pay off handsomely for them. Any company or organization brave/smart enough to get into Bitcoin will be extremely well rewarded for it.

I believe Harvard and Yale bought up several hundred million dollars of Bitcoin back in 2018, so add MicroStrategy to the list of big organizations that have hundreds of millions of dollars of Bitcoin as an investment. I wonder if there are any more. In another 5 or 10 years that list will hopefully grow to dozens.

[thecodebear]

I'd be vary of such orgs coming into btc trading... Sorta defeats the purpose of it surviving as a currency and only as a trading mechanism; which is not what it should primarily be.

There is no "this is what bitcoin should be". Bitcoin is what it is. If someone wants to spend it, they can spend it. If someone wants to use it for sending money across borders, they can do that. If someone wants to trade it, they can trade it. If someone wants to hold it as a long term investment, they can do that. Hell, if someone wants to use Bitcoin in Ethereum smart contracts for DeFi or whatever they can tie it up in that, and that's fine. All of these things are fine to do. There is no one right way to use bitcoin. And all uses add to Bitcoin's relevancy in society and its adoption, so they are all good.

[JayJuanGee]

I'd be vary of such orgs coming into btc trading... Sorta defeats the purpose of it surviving as a currency and only as a trading mechanism; which is not what it should primarily be.

There is no "this is what bitcoin should be". Bitcoin is what it is. If someone wants to spend it, they can spend it. If someone wants to use it for sending money across borders, they can do that. If someone wants to trade it, they can trade it. If someone wants to hold it as a long term investment, they can do that. Hell, if someone wants to use Bitcoin in Ethereum smart contracts for DeFi or whatever they can tie it up in that, and that's fine. All of these things are fine to do. There is no one right way to use bitcoin. And all uses add to Bitcoin's relevancy in society and its adoption, so they are all good.

Largely, I agree with you thecodebear in terms of bitcoin users figuring out whether bitcoin provides some kind of use case for them and then, if it does, then using bitcoin in the way that they believe is suitable to their needs.  If bitcoin does not provide certain use cases for certain "would be users" that they would like to have in bitcoin, then surely they can attempt to get those kinds of features or use cases added to bitcoin, but in the end, bitcoin is not going to give any shits, if someone wishes that they could use bitcoin to buy a latte and not pay any fees for that transaction.. and do it with zero confirmations and to have their transactions immediate.

Of course, in accordance with Gresham's law, most people are going to use whatever payment processing service that is either the least valuable in terms of holding value or the least costly to use, and maybe some day, BTC will supplant a bunch of the currently existing payment processors too because value will likely continue to gravitate into BTC.. but seems more likely that a variety of payment processors are going to continue to exist for some time, and perhaps payment processing on bitcoin or pegged to bitcoin is going to happen on some kind of second or third or fourth layer rather than directly on the BTC blockchain.. even though right now, some transactions can go for relatively low fees, that might not always be the case.. absent some surprise developments that push bitcoin to change in the on-chain payment processing direction.

Surely, bitcoin provides a powerful option that was not available earlier (before bitcoin was invented and implemented), in terms of a sound money that is kind of similar to gold, but better than gold in almost all ways (except the physical tangibility aspect of gold - which is also a cost of gold), and recognizing that bitcoin is better than gold in almost all money ways seems to be a better way of thinking about what bitcoin currently is and what bitcoin has to offer in terms of bitcoin being more scarce, more portable, more divisible, more verifiable, and just something that is capable of being individually held and managed, either without a third party or just way less expensive to manage in terms of either how to hold, how to manage or not having to get permission regarding sending or receiving it... which give powerful options to bitcoin in and of themselves, even if I have not described all of the possibilities that a better kind of Gold has, with the passage of time, it seems quite likely that more and more people are going to recognize a variety of use cases around bitcoin which will continue to cause value to gravitate towards and into bitcoin, which likely was part of the incentive that Microstrategy had in terms of their decision to take a decently-sized stake in bitcoin at supra $10k prices (seems to have been around $11,653-ish per BTC that they would have paid).