In the last 30 days, Bitcoin recorded a gain of 34%, rising from $27.6K to $37K. The impressive rally erased losses following the crashes of Terra (LUNA), Celsius, Blockfi, 3AC and FTX. It is worth noting that these Ponzi-like schemes became vulnerable after the Federal Reserve began its cycle of rapid rate hikes in March 2022.
At that time, the Bitcoin price was $47.5K. But in the new high interest rate environment, the narrative surrounding Bitcoin’s fourth halving in April 2024, combined with near-certain Bitcoin ETF approvals, appears to be counteracting the market’s decline in liquidity.
While the floodgates of institutional capital are expected to open, pioneers in the field have already made massive Bitcoin profits. The most publicly visible institutional investor is Michael Saylor’s MicroStrategy.
How has the company fared so far, and will Saylor’s enthusiasm spread to other companies once the results are in?
h2 MicroStrategy’s Bitcoin gambit has already paid off/h2
As CEO of MicroStrategy, Michael Saylor launched the Bitcoin competition in August 2020 by purchasing 21,454 BTC, worth $250 million at the time. Although Saylor stepped down as CEO in August 2022 and moved on to executive chairman duties, the BTC acquisition strategy continued.
As of November 1, 2023, the company collected 158,400 Bitcoins at an average purchase price of $29,609.65. The bet netted $1.2 billion in unrealized winnings. This “hodling” strategy is in line with the previous report that it is still the best choice for crypto investors.
MicroStrategy’s path to owning 158,400 BTC. Image courtesy of MicroStrategy
Over the three years, the investment amounted to $4.69 billion. The current BTC price of $37,082 means MicroStrategy is up 25.2%. More importantly, this had a multiplier effect on MSTR stock, which increased in value by +250% year-to-date.
Bitcoin (BTC) vs. MicroStrategy (MSTR) since the beginning of the year. Over the last month, MSTR shares are up 49%. Image courtesy of TradingView
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The company’s primary revenue comes from subscriptions to its business analytics software. In the third quarter, those revenues increased 28% year-over-year to $21 million, while software licensing revenue brought in $45 million, up $16 year-over-year.
Still, MicroStrategy has effectively served as a Bitcoin exposure proxy without holding BTC in a self-custody wallet. This concept is behind the much-lauded Bitcoin ETFs as they offer even more direct spot exposure.
h2 As BTC price rises, does the risk of sell-offs increase?/h2
Through its MacroStrategy division, the company used debt to achieve this level of BTC exposure. With outstanding debt and convertible notes, the resulting annual interest expense is $35.5 million. For comparison, MicroStrategy reported a non-GAAP operating loss of $8 million in the third quarter.
However, the non-cash digital asset impairment charge for the quarter is up $34 million. This explains the price movements of Bitcoin on MicroStrategy’s balance sheets. This results in 90% of Saylor’s BTC holdings being “unencumbered.”
The majority of Saylor’s Bitcoins are not under debt service pressure. Image courtesy of MicroStrategy
In other words, it’s far more likely that Saylor is selling boosted MSTR shares, courtesy of BTC, to continue servicing debt and covering operating losses.
h2 Michael Saylor’s expectations/h2
On November 2, Michael Saylor appeared on the CNBC series Squawk on the Street. Staying true to Bitcoin maximalism, he noted that we are emerging from the era of altcoins that “distracted and destroyed shareholder value.”
When it comes to the critical dynamics of Bitcoin supply and demand going forward, Saylor leans towards the side of higher demand.
“You’ll see $12 billion in natural sales per year turn into $6 billion in natural sales per year, while at the same time things like spot Bitcoin ETFs are driving demand for Bitcoin.”
With Sam Bankman-Fried’s trial concluded, it appears that the guilty verdict on all fraud counts marks the exhaustion of Bitcoin’s FUD supply. However, the New York Fed’s recession indicator is also expected to be at 56% over the next 12 months.
If a recession were to occur, it is not clear how Bitcoin investors would react. This largely depends on its intensity and longevity.
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This Five Minute Finance provides weekly analysis of the biggest trends in finance and technology.
Neither the author Tim Fries nor this website The Tokenist provide financial advice. Please consult our website policies before making any financial decisions.
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