A moment of market history was when the Hunt Brothers attempted to corner the market on silver (Silver Thursday), which occurred from 1979 to 1980.
If the article is accurate, the Hunt Brothers at one point controlled a third of the world’s privately available silver supplies, primarily using futures contracts.
The collapse of the scheme occurred when the highly leveraged Hunt Brothers could not post sufficient equity to keep their margin loan going.
Fast forward 44 years and we have the situation with Microstrategy and Bitcoin, which appears to be an analogous situation.
On March 11, 2024 via Form 8-K, Microstrategy announced they had purchased 12,000 Bitcoin, during the period between February 26, 2024 and March 10, 2024, for $822 million, mostly with the proceeds of an $800 million convertible debt offering (0.625% coupon, maturing March 15, 2030, convertible into equity at $1498/share). After this filing, Microstrategy owned 205,000 Bitcoins purchased at a cost of $6.91 billion.
I will note this date range of the purchased Bitcoin appears to line up exactly with the rise from $53,000 per Bitcoin to around the $67,000 we see today:
This wasn’t enough.
On March 15, 2024, Microstrategy closed another convertible bond offering, $525 million (0.875% coupon, maturing March 15, 2031, convertible into equity at $2327/share). Unlike the previous offering, this offering claimed to be used for general corporate purposes and the purchase of additional Bitcoins.
With the stock price (after a 15% drop as of the writing of this article) at about $1,500 a share, they are obviously continuing to leverage themselves to the hilt in order to keep the price of Bitcoin high. The liquidity of Bitcoin itself is somewhat questionable – throwing $820 million into Bitcoin over 10 trading days is enough to spike it around 30-40% in value. Microstrategy is clearly trying to keep as much gasoline onto the Bitcoin fire as it can, as its market valuation is tied to the hip with it. The primary owner and chairman, Michael Saylor, is dumping stock like crazy while the going is good.
My only question is when will this house of cards collapse?
The answer is strange – it depends on whether the stock collapses. It may not happen soon. The looming debt maturity was going to be in 2025 with a $650 million convertible note, but it is likely that it will be converted at approximately $398/share. The next looming debt maturity are the 2027 notes, which has a conversion price of $1432/share, which is much closer to the current stock price.
As long as the company can keep the stock price up and be able to avoid raising cash (presumably by selling Bitcoin!) in order to pay for the maturity, this can go indefinitely.
The cycle would be: issue equity or convertible debt financing -> purchase bitcoins -> raise the price of bitcoins -> higher MSTR stock valuation -> issue equity or convertible debt financing
The question will eventually be settled by somebody with deeper pockets than Microstrategy that decides to short enough Bitcoin and also Microstrategy stock to get an even larger payoff in the subsequent collapse. They would need to force Microstrategy to sell its Bitcoin.
Um, no. There are about 19.658M bitcoins in existance today (though some percentage of these have been lost) – (see https://buybitcoinworldwide.com/how-many-bitcoins-are-there/). MSTR’s 205,000 is slightly more than 1%, hardly enough to even think about cornering the market. Satoshi Nakamoto, the inventor of bitcoin is estimated to have 1.1M bitcoins. The US government has 207,000 bitcoin and the ETFs GBTC and IBIT both have more bitcoin than MSTR (380,000 and 228,000 respectively) (https://bitcointreasuries.com/). MSTR bought the 12,000 bitcoin on March 9/10 according to a statement by Saylor. The increase in bitcoin price isn’t due to MSTR’s purchase but the start of 9 new US bitcoin ETFs on January 11. There was some rebalancing between GBTC, an existing bitcoin closed end fund, which had substantial withdrawals and the new ETFs before demand exceeded supply and the bitcoin price started moving around Feb 25. The nine new ETFs have bought something on the order of 450,000 bitcoins since January.
In a couple of recent videos, Saylor says that he sees bitcoin as a long term asset of value, more like property or gold than a currency. Since there will only ever be 21M bitcoins, the price should rise assuming more people want to have some. Currently, only about 900 bitcoin are mined each day. In about a month or so, that number will be halved. After previous halvings (a design aspect of bitcoin), the price has risen significantly. Quite a few people expect bitcoin to be over $100K by the end of the year. As long as the price of bitcoin continues rise, Saylor can continue leveraging his company’s earnings to buy bitcoin through these convertible debt offerings. I suspect he will happily dilute MSTR shares to continue to fund bitcoin purchases and, assuming the price of bitcoin continues to rise, increase the value of his company. However, MSTR’s purchases of bitcoin are unlikely to be a major driver of bitcoin price and it’s bitcoin holdings far too small to think about cornering the market.
see: https://cointelegraph.com/news/michael-saylor-bitcoin-better-seen-property-not-currency
https://www.fiatcave.com/p/bitcoin-is-the-premier-global-savings and for a really far out take https://noconflictnointerest.substack.com/p/how-bitcoin-eats-the-equity-market
Fantastic bit of sleuthing!
Thanks for the heads up. I found this afterwards: https://www.bnnbloomberg.ca/microstrategy-owns-about-1-of-all-bitcoin-with-latest-purchase-1.2048786
MSTR has about 1% of the available Bitcoins.
This is true insanity.