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

[fillippone]

If the other assets were underperforming, then I could have agreed. But that is not the case. The Dow Jones Industrial Average has risen by around 65% during the last 6-7 months (ever since the start of the global COVID 19 pandemic). Most of the investors are selling their other assets (such as treasury bonds and bullion) to invest in equities. And this time, how can Saylor justify his move to invest in cryptocurrency?

I think the ultimate thesis of Micheal Saylor is that DJIA rising 65% during last months (I think BTC had a better performance btw), is at least in part due to the loss in value of USD, which is the account measure of the index itself.

In case of dollar debasement, or loss of purchasing power, prices will inevitably go up (official inflation numbers may be, may be not). This will push up nominal revenue for firms, thus pushing nominal stock prices up.

Nominal price increase, unchanged purchasing power: stocks are like a sub-optimal gold, in this sense.

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[fillippone]

A recap of this thread:

Microstrategy's BTC Holdings More Than Double in Value to $2.4 Billion Four Months Later

Meanwhile, following the recent BTC performances, the value of this Nasdaq listed company’s stock has surged from just under $135 recorded on August 11 to $388.55 by close of trading on December 31. This has seen Microstrategy’s market capitalization rising from $1.3 billion to $3.6 billion, representing a growth of approximately 187% in less than 6 months.

Microstrategy initially bought 21,454 BTC on August 11 before adding another 16,796 on September 14 to complete this first round of buying. Since then, the listed firm subsequently increased its BTC holdings to 70,470 coins. At the time of writing, the listed company’s BTC holdings were valued at nearly $2.4 billion.

It's just a recap, but from time to time those summaries are useful when dealing with those incredible performances.

[fillippone]

According to a SEC filing released on January 8th, Morgan Stanley now owns 10% of Microstrategy.



They now own 792,627 shares, equal to 10.9% of the total Class A shares (the ones with regular voting power).
With MicroStrategy trading at 531 on that day, that represented an investment worth around 490$ million.

Today a few days have passed, bitcoin is down a bit, and Microstrategy is now worth 495, so they lost 7%.

What if they had invested directly in BTC?
Let's look at the CME BRR index, the underlying spot index used to settle CME futures.
The index is down 21% from January 8th: from 40982 to 32502.

Just for an added comparison, what if they had invested in Grayscale (they are closed to investments, right now, but let's ignore that)
GBTC, from January 8th to January 11th fell from 44.42 to 37.40, of 16% (the premium compressed a little bit and helped reducing the loss).
hat:

So apparently Microstrategy lost way less than Bitcoin, and also less than GBTC.

Actually Microstrategy it is not a full Bitcoin company (yet)


If we look at my spreadsheet we see t


So MS bought 10% of a 28% Bitcoin Company.
Even thou Micheal Saylor pledged not to do so, they could sell their BTC stash tomorrow, drastically changing the outlook for the firm (for better or worse, let's discuss elsewhere).
What I am saying is that this choice is weird and largely sub-optimal.

Unless the SEC approved a fully regulated, supervised BTC Exchange-Traded Products (if not a proper ETF; but unlikely), investment managers won't have a better choice to buy "shady tech stocks who appear to be long bitcoin" of "suboptimal investment vehicles" who charge investors huge premiums.

Definitely, there is space for improvement from regulators.

[aoluain]

What if they had invested directly in BTC?

Morgan Stanley have definitely changed their tune  [BIG TIME] towards Bitcoin.
The 10.9% stake in Microstrategy has as you say paid off. and is an indirect
avenue into Bitcoin investing, I think its only a matter of time before they go
direct aswell.

So apparently Microstrategy lost way less than Bitcoin, and also less than GBTC.

I think this is solely down to Michael Saylor himself and how he is so bullish on
Bitcoin. He talks and walks the walk. His advice publicly makes sense even to
every day Joe Soap's [like me]

Even thou Micheal Saylor pledged not to do so, they could sell their BTC stash tomorrow, drastically changing the outlook for the firm (for better or worse, let's discuss elsewhere).

Sell all their Bitcoin and move into ? The whole philosophy is to abandon FIAT
based investments and move into something which preserves a value.

[fillippone]

Microstrategy bought another 10 millions in bitcoin:



https://twitter.com/michael_saylor/status/1352614708797464582?s=21

10 millions is peanuts for them. Like buying booze with the 5 dollar note you found in an old pair of jeans.

[acquafredda]

"The time to buy is when there's blood in the streets."
We need more people like Michael Saylor now that the noobs' gates have been opened.
Bitcoin is not something to simply invest in! Either you buy because you believe in its value proposition or leave it there for us.

[thecodebear]

Microstrategy bought another 10 millions in bitcoin:



https://twitter.com/michael_saylor/status/1352614708797464582?s=21

10 millions is peanuts for them. Like buying booze with the 5 dollar note you found in an old pair of jeans.

Hmm I guess since Microstrategy is using BTC as its treasury reserve now they will just keep buying a little bit at a time when they have cash on hand. Interesting. I'd assumed they were done buying, but obviously its a very profitable business so we should see Microstrategy continuing to stack sats a few million $ worth at a time every once in a while when they have fresh profit from the business. Presumably the might also sell a little bit here and there at points when they need extra cash for some operational cost. Gotta hand it to the CEO, he's the smartest CEO on the planet right now.

[The Sceptical Chymist]

"The time to buy is when there's blood in the streets."

That's a great saying and it's true--but with respect to bitcoin, there's no blood anywhere to be seen on any streets.  Blood was a-plenty back when COVID-19 hit and bitcoin fell below $6k, but all of a sudden after it's hit its all-time high it's a brilliant move to be buying bitcoin.  To me that's insanity.

And frankly I couldn't care less if it were MicroStrategy's CEO buying bitcoin with his own money, but he's not--he's buying it with his public company's money, and boy are they going to be pissed off if bitcoin doesn't keep performing well.  Of course I'm hoping it does anyway, but I question whether he should be buying more at these prices.  It's kind of like big companies that buy back their own stock when it's trading at a P/E of 90.  In hindsight, it's always viewed as a stupid move.  But we'll see.  I'm hoping for the best for MSTR. 

[Inspiron14]

if they buy a very large quantity, then they will also sell a very large amount right?
which is my question here about the institution is when they will sell it, I myself am still confused about finding this answer,
do they have a sales contract? if you imagine the institution selling Bitcoin will be even scarier than the correction that occurred the other day.

[fillippone]

Hmm I guess since Microstrategy is using BTC as its treasury reserve now they will just keep buying a little bit at a time when they have cash on hand. Interesting. I'd assumed they were done buying, but obviously its a very profitable business so we should see Microstrategy continuing to stack sats a few million $ worth at a time every once in a while when they have fresh profit from the business. Presumably the might also sell a little bit here and there at points when they need extra cash for some operational cost. Gotta hand it to the CEO, he's the smartest CEO on the planet right now.

Very well put: they are probably converting their cash flows into BTC.
That was part of the plan, after all.
Another thing I noticed is that this communication comes almost exactly after one month since the precious one: they might just be communicating the average of buying over the last month.
Shall we expect another update in one month?

[figmentofmyass]

"The time to buy is when there's blood in the streets."

That's a great saying and it's true--but with respect to bitcoin, there's no blood anywhere to be seen on any streets.

did you not see that $13k/32% crash over the past couple weeks?

sure, we could technically go lower, but that's a lot of blood already. so many people were just ruined by margin calls---there was something like $1 billion in longs liquidated on the crash below $30k. so many new bitcoin investors just panic sold at the bottom too.

And frankly I couldn't care less if it were MicroStrategy's CEO buying bitcoin with his own money, but he's not--he's buying it with his public company's money, and boy are they going to be pissed off if bitcoin doesn't keep performing well.

actually, both:

Some have asked how much #BTC I own. I personally #hodl 17,732 BTC which I bought at $9,882 each on average.
https://twitter.com/michael_saylor/status/1321422012380753921

[JayJuanGee]

if they buy a very large quantity, then they will also sell a very large amount right?
which is my question here about the institution is when they will sell it, I myself am still confused about finding this answer,
do they have a sales contract? if you imagine the institution selling Bitcoin will be even scarier than the correction that occurred the other day.

Don't think about how they will manage their portfolio. Because they will never divulge their strategies here. Maybe after they completed their deal or something. But right now, bitcoin is still hot in the market, so don't think they will disclose their process here. For all we know, they are already slowly selling some of their stash which was bought around 20k. So who knows what's going on in their portfolio?

Your comment makes hardly any sense.. and is contrary to what is likely actually happening.  You seem to be engaged in wishful-thinking rather than really attempting to understand what is actually going on in the bitcoin space and especially in respect to MSTR and perhaps some other companies who also might have decided to copy MSTR's strategy..  

Largely MSTR has provided their playbook and quite a few guidelines and justifications for allocating (substantial portions of their cash reserves) into bitcoin.  Sure, they may not have divulged every last detail of what they are doing or what they might do beyond what they have chosen to provide, but they have given a decently broad overview and also justifications for "why bitcoin."

Yes, there are some folks participating in this very thread who are presuming that since MSTR is buying, they must be secretly selling too or have intentions to sell BTC in the near future..

Yeah, right.

If MSTR had anywhere in the $1million to $10million per month positive cashflow, and they have already said that they are buying BTC with such extra cashflow that they have coming in.. then why all of a sudden would they be doing the opposite of what they said that they are doing?  In essence, MSTR is employing a kind of  dollar cost averaging practice on the corporate level whether they buy in several lump sums over the month (or one lump sum) or they buy on a shorter period basis at several times through the month  (and we are not just referring to one month of BTC buying since MSTR has largely been buying BTC on a fairly regular basis - including engaging in some leveraging, too, since about July/August of last year).

Edited typos/grammar and clarifications

[thecodebear]

if they buy a very large quantity, then they will also sell a very large amount right?
which is my question here about the institution is when they will sell it, I myself am still confused about finding this answer,
do they have a sales contract? if you imagine the institution selling Bitcoin will be even scarier than the correction that occurred the other day.

Well they aren't using Bitcoin as an investment to sell at some price for profit. They are literally using it as their treasury reserve instead of USD. So they are just holding all their cash in Bitcoin instead of USD. The only time they would need to sell it when they want to spend some of that cash. Looks like we should expect them to continue buying every once in a while with extra cash they have from their business. I'd assume they buy more after already covering all their expenses in general with their revenue so the only reason to sell would be for non-regular costs like specific business expansions or something.

[acquafredda]

"The time to buy is when there's blood in the streets."

That's a great saying and it's true--but with respect to bitcoin, there's no blood anywhere to be seen on any streets.  Blood was a-plenty back when COVID-19 hit and bitcoin fell below $6k, but all of a sudden after it's hit its all-time high it's a brilliant move to be buying bitcoin.  To me that's insanity.

And frankly I couldn't care less if it were MicroStrategy's CEO buying bitcoin with his own money, but he's not--he's buying it with his public company's money, and boy are they going to be pissed off if bitcoin doesn't keep performing well.  Of course I'm hoping it does anyway, but I question whether he should be buying more at these prices.  It's kind of like big companies that buy back their own stock when it's trading at a P/E of 90.  In hindsight, it's always viewed as a stupid move.  But we'll see.  I'm hoping for the best for MSTR.  

No blood yet, you are right. When I look around though, MSM are all about doom and gloom (have you read about the double spend fud, bitcoin's dead again, the bubble popped ......) and noobs are reacting quite badly to the new market conditions.
We are not there yet, but better be ready at the window.

[fillippone]

Finally at last!
A "Value investor" decided to buy Microstrategy:

Value Investor Bill Miller Buys MicroStrategy Debt for the Bitcoin

• Bill Miller is value investor who likes Bitcoin.
• MicroStrategy is a business that sold securitized debt to finance larger Bitcoin purchases.
• In an investor letter, Miller explained why his fund bought the MicroStrategy bonds.

So he basically decided to buy MicroStrategy subordinated bond at a yield of.... drumrolls..0.75%

Just wow!

This choice is ridicule for a variety or reasons:

• They chose to buy an highly structured bond that might turn being converted into MicroStrategy shares, or might not. MicroStrategy could also return the initial cash to investors leaving them with a less than 1% yield.
• If you want to get long bitcoin get long via the simplest instrument, not the more complex. Buy bitcoin, buy a CME future, buy BTCE, buy GBTC, then buy whatever other financial contract indexed to bitcoin. Only if you are not able buying those, you can start buying MicroStrategy.
• Buying MicroStrategy, you are not only buying bitcoin, buy you are also buying a whole sovrastructure you are not probably interested in. Just remember that MicroStrategy sells software, what if software do not work? Do not sell? If there is a patent infringement potentially causing billions of loss?
• If you are a value investors, you are not giving Michael Saylor the power to decide on your investments. What if Michael Saylor decides to sell his bitcoins? or, as someone suggests in the thread, given the fact bitcoin is not an investment, but a treasury assets, to sell some to finance a new software, or a new acquisition or whatever occurrence a CEO (with 70% of the voting power, do not forget), can freely decide?
  

If I had some money given to this bloke, I would be massively pissed off.

[The Sceptical Chymist]

• Buying MicroStrategy, you are not only buying bitcoin, buy you are also buying a whole sovrastructure you are not probably interested in. Just remember that MicroStrategy sells software, what if software do not work? Do not sell? If there is a patent infringement potentially causing billions of loss?

Good point--I didn't read the article, but I got the general gist of it by what you posted.  It sounds like Miller wants to hedge his bitcoin bet big time and might be interested in MSTR itself as well as the bitcoin they hold (even if that's not what he's saying). 

Kind of makes me wonder how many other investors are buying MicroStrategy stock "for the bitcoin".  Based on their stock's performance since they started buying BTC, my guess is more than a few.  Crazy.  And I don't really have a problem with that; some folks don't want to buy actual bitcoin.  They'd rather buy shares in a company that owns a lot of it.  I can understand that as a stock market nut myself, but as a bitcoin nut I see your point completely.

[fillippone]

• Buying MicroStrategy, you are not only buying bitcoin, buy you are also buying a whole sovrastructure you are not probably interested in. Just remember that MicroStrategy sells software, what if software do not work? Do not sell? If there is a patent infringement potentially causing billions of loss?

Good point--I didn't read the article, but I got the general gist of it by what you posted.  It sounds like Miller wants to hedge his bitcoin bet big time and might be interested in MSTR itself as well as the bitcoin they hold (even if that's not what he's saying). 

Kind of makes me wonder how many other investors are buying MicroStrategy stock "for the bitcoin".  Based on their stock's performance since they started buying BTC, my guess is more than a few.  Crazy.  And I don't really have a problem with that; some folks don't want to buy actual bitcoin.  They'd rather buy shares in a company that owns a lot of it.  I can understand that as a stock market nut myself, but as a bitcoin nut I see your point completely.

If I were a stock market guy, other than a bitcoin nut, I would choose one of the numerous ISIN codes available for investment (in my case, being European BTCE, but I guess Grayscale if I were US based). Most probably, I wouldn't buy MicroStrategy. For sure I wouldn't do that to brag about it, being a "value investor".

[The Sceptical Chymist]

For sure I wouldn't do that to brag about it, being a "value investor".

Yeah, value investor my ass--at least Miller isn't being one in this case:



Note the P/E of 5048.  Usually, value investors don't chase stocks with P/E's as high as that.  Warren Buffet probably hasn't purchased a stock with a P/E higher than 18.  So yeah, MSTR is massively overvalued--even more so than the rest of the stock market right now.

Also, it's no wonder Miller didn't buy MSTR stock outright.  There aren't that many shares outstanding relative to other companies.

[JayJuanGee]

"The time to buy is when there's blood in the streets."

That's a great saying and it's true--but with respect to bitcoin, there's no blood anywhere to be seen on any streets.  Blood was a-plenty back when COVID-19 hit and bitcoin fell below $6k, but all of a sudden after it's hit its all-time high it's a brilliant move to be buying bitcoin.  To me that's insanity.

And frankly I couldn't care less if it were MicroStrategy's CEO buying bitcoin with his own money, but he's not--he's buying it with his public company's money, and boy are they going to be pissed off if bitcoin doesn't keep performing well.  Of course I'm hoping it does anyway, but I question whether he should be buying more at these prices.  It's kind of like big companies that buy back their own stock when it's trading at a P/E of 90.  In hindsight, it's always viewed as a stupid move.  But we'll see.  I'm hoping for the best for MSTR.  

No blood yet, you are right. When I look around though, MSM are all about doom and gloom (have you read about the double spend fud, bitcoin's dead again, the bubble popped ......) and noobs are reacting quite badly to the new market conditions.
We are not there yet, but better be ready at the window.

There does not have to be blood in the streets in order to cause conditions for BTC prices to be ready to continue UPpity.  Sure, we could get more correction from here, but it is not a condition precedent for UP.

Finally at last!
A "Value investor" decided to buy Microstrategy:

Value Investor Bill Miller Buys MicroStrategy Debt for the Bitcoin

• Bill Miller is value investor who likes Bitcoin.
• MicroStrategy is a business that sold securitized debt to finance larger Bitcoin purchases.
• In an investor letter, Miller explained why his fund bought the MicroStrategy bonds.

So he basically decided to buy MicroStrategy subordinated bond at a yield of.... drumrolls..0.75%

Just wow!

This choice is ridicule for a variety or reasons:

• They chose to buy an highly structured bond that might turn being converted into MicroStrategy shares, or might not. MicroStrategy could also return the initial cash to investors leaving them with a less than 1% yield.
• If you want to get long bitcoin get long via the simplest instrument, not the more complex. Buy bitcoin, buy a CME future, buy BTCE, buy GBTC, then buy whatever other financial contract indexed to bitcoin. Only if you are not able buying those, you can start buying MicroStrategy.
• Buying MicroStrategy, you are not only buying bitcoin, buy you are also buying a whole sovrastructure you are not probably interested in. Just remember that MicroStrategy sells software, what if software do not work? Do not sell? If there is a patent infringement potentially causing billions of loss?
• If you are a value investors, you are not giving Michael Saylor the power to decide on your investments. What if Michael Saylor decides to sell his bitcoins? or, as someone suggests in the thread, given the fact bitcoin is not an investment, but a treasury assets, to sell some to finance a new software, or a new acquisition or whatever occurrence a CEO (with 70% of the voting power, do not forget), can freely decide?
  

If I had some money given to this bloke, I would be massively pissed off.

Seems to me that Saylor is doing the right thing if he attempts to provide as much flexibility to his instrument that he can, but does not necessarily mean that he (Saylor) is going to act upon such flexibility (such as selling BTC for whatever reason(s) he believes might be in the interests of the company..  - even though he has options in that direction.

[verita1]

Sorry the link is broken.
I did my own search and found this:

https://decrypt.co/55120/value-investor-bill-miller-buys-microstrategy-debt-for-the-bitcoin?amp=1

“In our assessment there was very little downside and an almost-free call option on Bitcoin,” he wrote. "MicroStrategy now owns more Bitcoin than any operating company, which imbues some scarcity value above and beyond the value of the core business and the coins it holds."

It's like a safe bet that MicroStrategy shares will rise and the price of Bitcoin will continue to climb. For MicroStrategy bitcoin is the most precious asset today and it is racing to accumulate more.

Michael Saylor is now so popular that he attends interviews and is convincing the audience of his purposes with bitcoin.