Since the election of Trump, Microstrategy has been on a regular cadence of issuing convertible bonds to purchase more bitcoin. I previously wrote about it here but didn't quite articulate it as well.
The current premise is that Microstrategy is:
- Issuing their convertible bonds to get USD
- Using the USD to buy bitcoins
- Watching their stock price go up
- Realizing that the convertibles bonds are in-the-money that can convert into stock
Then rinse and repeat 1-4.
Matt Levine, came to this conclusion here:
We talked last month about MicroStrategy’s plan here, which is pretty straightforward. MicroStrategy is essentially a pot of Bitcoins: Currently it owns 331,200 Bitcoins, and Bitcoin is trading at around $91,000, making MicroStrategy’s pot worth about $30 billion. It also runs an enterprise software business but that hardly seems relevant. MicroStrategy’s market capitalization is about $84 billion, meaning that it trades at well over a 150% premium to the value of its Bitcoins. So it can sell $1 worth of stock, buy $1 worth of Bitcoin, and add $2.50 of market capitalization. It can create value out of nowhere.
The natural response to discovering this magical phenomenon is to ask “well, okay, but how much of this can we do?” That was MicroStrategy’s response — it would absolutely be mine! — and it hasn’t found the limit yet. It did $4.6 billion of stock sales, and $4.6 billion of Bitcoin buying, last week. Its stock was up, Bitcoin was up, and its premium to Bitcoin also went up modestly.[1]
If you can issue stock for $1 and watch your stock price go up by $2.50, why would you stop?