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Institutional Landscape for Investing in Digital Assets (2): MicroStrategy

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MicroStrategy, the "shopaholic" of the Bitcoin market.

Original title: "Institutional Layout for Investing in Digital Assets (2): Micro-Strategy"

Original source: OKLink

In the past six months, a company suddenly broke into the world of digital assets.

It bought 70,460 bitcoins in a row at a unit price of only US$15,964, and now, the unit price of bitcoin is around US$36,000. It is a Nasdaq-listed company. Before buying Bitcoin, its stock price was around $120. Now, its stock price has hit a record high of $631.

(data source: finance.yahoo)

Its operating income has been deteriorating, and it has been losing money for the past two years. However, it has achieved the company's "jedi counter-kill" by virtue of its bitcoin investment strategy.

Its founder is 56 years old. He is about to retire, and he has become a "die-hard fan" of Bitcoin without warning. The asset industry is famous.

(Source: microstrategy official website)

This company is called MicroStrategy, Ticker MSTR, which already holds 0.336% of the total Bitcoin in circulation. You may not have heard of it, but you need to be ready to accept it.

Forced to the edge of the cliff, Bitcoin broke the game

MicroStrategy was founded in 1989 by Michael J. Saylor and Sanju Bansal and is headquartered in Virginia, USA. In 1998, MicroStrategy was listed on NASDAQ (NASDAQ: MSTR), mainly providing BI services, mobile software and cloud services.

Since 2015, MicroStrategy has ushered in its own "mid-life crisis", and its operating income has gone from bad to worse. In 2015, the company’s revenue was still $134 million, but it has been declining year by year since then. By 2018, the revenue had dropped sharply to 3.981 million US dollars. In 2019, the loss was 1 million US dollars. In the third quarter of 2020, the revenue loss was about 14.02 million US dollars.

(data source: macrotrends)

Since MicroStrategy purchased Bitcoin in July, MicroStrategy's stock price has risen from more than 120 US dollars to a maximum of 631 US dollars as mentioned above, The floating profit exceeds 350 million US dollars. The development of traditional business was sluggish, and the company's revenue was facing difficulties. MicroStrategy chose to use Bitcoin to break the situation, and they succeeded.

Michael Saylor: 56-year-old "Bitcoin pusher"

Michael Saylor is MicroStrategy The main driver of buying Bitcoin.

He was born in 1965 and is 56 years old this year. As the principal founder of MicroStrategy, he has served as CEO since the company's inception and holds 2,011,668 Class B shares of MicroStrategy, with 73.4% of the voting rights. Therefore, although MicroStrategy is a listed company, it has an absolute say in the company's decision-making. MicroStrategy's "Bitcoin Capital Allocation Strategy" can be said to have been arranged by Michael Saylor. This is extremely evident in Michael Saylor's Twitter account and personal investments. Before August 2020, although Michael Saylor was the CEO of the company, his Twitter account was not very active, and he mainly released some official company information.

On August 11th, Michael Saylor tweeted that "MicroStrategy accepts Bitcoin as fiscal reserve assets". After that, he became active on Twitter and became a fanatical supporter of Bitcoin. More than 95% of the published content was Bitcoin-related content, and most of the accounts he followed were also accounts in the encryption industry.

In addition to allowing his company to hoard bitcoins, Michael Saylor himself is also a big bitcoin investor. On October 28 last year, he tweeted out his crypto asset holdings. Michael Saylor alone holds 17,732 bitcoins at an average purchase price of US$9,882. According to the market price of bitcoins, the bitcoins he holds are currently worth US$684 million, making a net profit of US$508 million.

From September last year to now, Michael Saylor's top tweet has always been this one: "Bitcoin is a group of wasps serving the goddess of wisdom. It sucks the fire of truth, hides behind the wall of encrypted energy, and becomes smarter, faster, and stronger at an exponential rate."

How much Bitcoin did MicroStrategy buy?

So far, MicroStrategy has bought Bitcoin 4 times, invested a total of 1.125 billion US dollars, and bought 70,470 coins, accounting for about 0.336 of the current total circulation %. Although it is far less than the holdings of Grayscale’s Bitcoin Trust (572,644), the Bitcoins of Grayscale Trust still belong to investors in essence, while the Bitcoins of MicroStrategy belong only to MicroStrategy.

(data source: bitcointreasuries. org)

This "bitcoin adventure" is not Michael Saylor's whim, but a long-planned gamble .

MicroStrategy has inoculated the market in advance. On July 28, 2020, in the second quarter financial report, MicroStrategy confirmed that "the new capital allocation strategy will invest 250 million US dollars in the next year, and invest in gold and digital assets (such as Bitcoin) according to market conditions." and other alternative assets”. After that, MicroStrategy began his 4 "whale" bitcoin roads:

• The first time was on August 11, 2020, MicroStrategy Announced the purchase of 21,454 bitcoins at a cost of 250 million US dollars (including purchase fees, the same below), and the average purchase price was 11,652 US dollars.

• The second buy was a month later. On September 14, 2020, MicroStrategy announced again that it had purchased 16,796 bitcoins at a cost of US$175 million, with an average purchase price of US$10,419.

• The third purchase of bitcoins is relatively small. On November 4, 2020, MicroStrategy announced the purchase of 2,574 bitcoins at a cost of US$50 million, with an average purchase price of US$19,427.

• The fourth time is the largest one. On December 21, MicroStrategy announced that it bought 29,646 bitcoins at a cost of 650 million US dollars. The average purchase price $21,925.

According to the currently disclosed information, MicroStrategy has identified Coinbase as their primary execution partner. Coinbase represents MicroStrategy, relying on its Coinbase Prime (brokerage trading platform) and OTC platform to purchase needed bitcoins.

The purchased bitcoins are hosted by a third party for cold storage. Although some information on the chain indicates that it may be hosted by Coinbase, there is no public information to support this guess.

Desperately betting on a bull market?

MicroStrategy is betting on Bitcoin, it is fighting for life, but it has won, and it has also created a bull market. Since the end of August last year, MicroStrategy has purchased Bitcoin 4 times, and the disclosure of each purchase has brought a wave of stock price rises. The company's total market value has reached 5.85 billion US dollars.

(data source: Google)

As a Nasdaq-listed company, MicroStrategy's actions have triggered other companies to follow suit, as these corporate investors continue to Entering the market, the digital asset market represented by Bitcoin has also gained new growth momentum and ushered in a bull market: the price of Bitcoin hit a record high of 41,950 US dollars, driving the total market value of Bitcoin to break through the one trillion US dollar mark, ETH Reoccupying the $1,000 high, the total locked-up volume of DeFi on Ethereum also hit a record high of $35.72 billion today.

(data source: OKLink)

Nevertheless , Michael Saylor's "bitcoin strategy" is still being questioned from inside and outside the company.

Internally, some MicroStrategy management is selling stock. According to public information, in the past few months, stock sales exceeded 50 million US dollars. The largest share sale was executed by CFO Phong Lee. At the end of November, 105,000 shares were sold, with a total value of 25 million US dollars. This move may be an opportunity for executives to cash out while the stock price is rising, or it may be that executives do not support Michael Saylor's "Bitcoin Strategy" and vote with their feet.

(data source: gurufocus)

From the outside, analysts at Citibank said, “MicroStrategy CEO Michael Saylor is paying too much attention to Bitcoin. , exposing investors to considerable risk", so adjusted MicroStrategy stock from "neutral" to "sell", and believed that the rise in MicroStrategy stock was an "overextension."

MicroStrategy is the "shopaholic" of the Bitcoin market, the future It is possible to continue to buy a large number of bitcoins, bringing benefits to the digital asset market. But at the same time, although Michael Saylor said that he will hold Bitcoin for a long time, if the price of Bitcoin falls sharply, MicroStrategy will also face repayment pressure, and the large amount of selling pressure may also bring some turbulence and impact to the Bitcoin market.