Michael Saylor and MicroStrategy have pioneered a modern dual strategy for public firms, consisting of an enterprise strategy and a treasury plan. In an effort to enhance income and profitability, the firm continues to market business intelligence software. MicroStrategy is simultaneously pursuing a treasury management strategy based on the acquisition of as much bitcoin as possible.
This dual strategy has produced a unique investment opportunity for investors. They acquire exposure to billions of dollars of bitcoin on the company’s balance sheet while retaining the benefits of a cash-generating software firm.
MicroStrategy has invested more than $3.8 billion in its treasury strategy and currently owns just over 125,000 bitcoin.Their cost basis per bitcoin is slightly more than $30,000. The value of bitcoin on their balance sheet is approximately $6 billion right now.
Eventually, the question arises, “What will MicroStrategy do with all of those bitcoins?”
We received a partial response yesterday. Michael Saylor revealed that his company has acquired a $205 million loan from Silvergate using a portion of MicroStrategy’s bitcoin holdings as collateral.
According to SEC filings, MicroStrategy posted $820 million in bitcoin collateral (25 percent LTV) and is paying a variable rate plus 3.70 percent.if MicroStrategy will continue to utilize the remainder of their bitcoin as collateral for future loans.
MicroStrategy’s decision to accept the loan is intriguing because they will essentially utilize the funds to purchase additional bitcoin. According to Saylor, “using the loan’s money, we’ve effectively converted our bitcoin into productive collateral, allowing us to continue executing our company strategy.” We haven’t seen many public companies turn their inactive bitcoin holdings into useful collateral.
This takes me to another conclusion I can draw from yesterday’s announcement. This leverage solution has been offered by Silvergate for some time, and MicroStrategy is not the only company to utilize it. The bank said that by the end of 2021, bitcoin will be used to back loans worth more than $500 million.
However, this loan to MicroStrategy has an unusual twist. According to Dylan LeClair, this is the first time an FDIC-insured bank has financed against the bitcoin collateral of a public corporation.
In the past few weeks, Terra has been using bitcoin as collateral for their UST stablecoin. MicroStrategy has begun providing bitcoin as collateral for loans. These isolated events are part of a bigger trend: people all over the world are starting to realize that bitcoin is the pure collateral of the twenty-first century.
Bitcoin’s digital and decentralized nature enables it to serve as collateral for both the owner and the recipient. The long-term trend of capital appreciation enables the arbitrage of deteriorating fiat money, while the great divisibility of a liquid market offers the recipient with protection against downside risk that is difficult to get.
It will be fascinating to see how this develops. Wall Street banks and legacy financial institutions disapprove of the use of bitcoin as collateral. As soon as businesses discover they can profit while mitigating risk, this will undoubtedly change. The world is ultimately driven by economic incentives, and people will soon discover that bitcoin is beneficial for business.
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Bottom Line : MicroStrategy has invested more than $3.8 billion in its treasury strategy and currently owns just over 125,000 bitcoin. Michael Saylor revealed that his company has acquired a $205 million loan from Silvergate using a portion of MicroStrategy’s bitcoin holdings as collateral.
MicroStrategy has become the latest company to use bitcoin as collateral for loans. This is the first time an FDIC-insured bank has financed against the bitcoin collateral of a public corporation. The world is driven by economic incentives, and people will soon discover that bitcoin is beneficial for business.
Credit: GlobalCrypto.Exchange, Dylan LeClair & Michael Saylor