30s Summary

MicroStrategy plans to acquire an additional $42bn of bitcoin over three years, following a $21bn offering of its own shares to raise funds. CoinShares recommends the company achieves active demand for its convertible debt and favourable financing conditions. High servicing costs and increased rates for newer issues could pose challenges. CoinShares suggests significant tax events could occur if bitcoin holdings are sold, and that MicroStrategy’s bitcoin operation may outstrip its software business. Despite potential shareholder dilution, the firm’s shares remain popular with investors as bitcoin heads towards $70,000.

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MicroStrategy’s bold move to snap up an additional $42 billion in bitcoin comes with its share of risks, CoinShares highlighted in a recent blog post. The company, founded by Michael Saylor, recently announced a $21 billion offering of its own shares to raise capital to further invest in bitcoin. This move is part of a bigger plan to acquire another $42 billion in bitcoin over the next three years.

For MicroStrategy to successfully pull off this massive bitcoin investment plan, a few conditions need to be met, CoinShares outlined. These conditions include favorable financing conditions and there needs to be an active demand for the company’s convertible debt. Analysts Alexandre Schmidt and Satish Patel also mentioned that servicing the company’s growing debt is becoming pricier. In 2021, the company managed to raise debt at zero-coupon convertibles, however, the rates have increased recently with newer issues.

The report pointed out that MicroStrategy’s fortune is closely tied to its bitcoin holdings. If the company decided to offload some of its stash of bitcoin, it could potentially lose its valuation premium. However, Michael Saylor has previously expressed that he has no intention of selling the company’s stash of bitcoin.

Another point that the report highlighted is that disposals of bitcoin from the company could potentially trigger significant tax events related to unrealized gains on its stack of crypto. In addition, CoinShares pointed out that the company’s bitcoin operation has potentially outgrown its software business. If this is the case, cash flows from its legacy operations may be insufficient to cover future coupon payments.

Despite announcing a large financing move that would dilute its shareholders, the firm’s stock remains popular among investors. Last week, Canaccord, a Wall Street stockbroker, said that MicroStrategy presents one of the best ways for stock investors to gain exposure to bitcoin.

The shares of MicroStrategy were trading 8% higher in the early trading hours on Tuesday as the price of bitcoin moves toward the $70,000 mark.