Nasdaq-listed MicroStrategy (MSTR) is continuing to buy hundreds of millions of dollars worth of Bitcoin (BTC ), causing its company’s stock to rise more than 9% on Sept. 16.
The purchase of bitcoin has returned MSTR stock to pre-Covidien levels.
On Aug. 11, MicroStrategy first announced that the company was buying bitcoin, after which its shares surged more than 10 percent.
Now the MSTR price has risen again in similar fashion, purchasing more than 38,000 BTC worth $425 million at an average price of $1,111 after confirming yesterday that it was doubling down on its adoption of the “Bitcoin Standard.”
“We just had the terrifying realization that we’re sitting on top of a $500 million ice cube that’s melting,” CEO Michael Saylor told Coindesk.
“This is not a speculation or a hedge. It’s a deliberate corporate strategy to adopt the Bitcoin standard.”
MSTR’s share price. Source from TradingView.com
A pseudonymous software engineer, Datavetaren, says other companies will follow MicroStrategy’s lead. he writes
“MicroStrategy is adopting the #bitcoin standard. Other companies will follow suit. Eventually, central banks will follow (Switzerland is likely to be the first.) The new gold standard for the digital age. A neutral store of value will create more checks and balances for governments.”
What are the risks of MicroStrategy’s Bitcoin accumulation strategy?
According to Joe Weisenthal, host of Bloomberg’s “What’d You Miss?” show, MicroStrategy’s revenue has steadily declined since 2013.
MicroStrategy’s revenue since 2011. Source: joe weisenthal. joe weisenthal.
Often, safe-haven assets such as gold and real estate are considered hedges against inflation. They act like insurance rather than investments, providing balance to a portfolio.
Bitcoin has the potential to achieve both, acting as a hedge against inflation and potentially outperforming many asset classes over time.
Grayscale’s CEO, Barry Silbert, said the acquisition could be the worst or smartest CEO decision of all time.
MicroStrategy is taking a huge risk to secure such a large BTC holding. But if BTC explodes with long-term growth, it could be a major catalyst for the stock, Silbert said
“This will go down in history as one of the smartest or worst CEO decisions ever made. Case studies and books will be written about it. Either way, it takes a tremendous amount of courage for a public company CEO, and I commend him for his courage.”
Don’t Celebrate MSTR Stock Like an ETF
One problematic sentiment surrounding MSTR stock is that some are celebrating it as a vulnerability in exchange traded funds (ETFs).
While the company has significant exposure to bitcoin, Jake Chervinskey, general counsel at Compound Finance, says such a loophole doesn’t exist. He also noted that if the company continues to buy more BTC, the U.S. Securities and Exchange Commission (SEC) may begin an investigation into it. He said
“No, there is no loophole in the federal securities laws that allows a publicly traded company to convert itself into a bitcoin ETF without SEC approval. the more bitcoin $MSTR buys, the more likely the SEC will start asking questions @Nasdaq doesn’t want to answer.”