1Wk·

MicroStrategy plans capital increase: doubts about the Bitcoin price?

MicroStrategy ($MSTR (-1.08%) ), the company that has placed Bitcoin at the center of its corporate strategy more consistently than any other, is announcing a capital increase at a ratio of 1:30. The aim is to generate fresh capital by issuing new shares. This news is causing a stir because it raises a crucial question: Does the company have doubts about the short-term stability of the bitcoin price?

A company under pressure?

MicroStrategy's strategy of investing heavily in Bitcoin has attracted both admiration and criticism in the past. With over 461,000 Bitcoin on its balance sheet, the company is extremely dependent on the price performance of the cryptocurrency. In times of a rising Bitcoin price, MicroStrategy benefits massively, but the downside of this dependency becomes apparent when the price falls.

A drastic drop in the price of Bitcoin would not only reduce the value of the reserves, but could also jeopardize financial stability, especially because part of the Bitcoin holdings serve as collateral for loans. A capital increase could therefore be a sign that MicroStrategy is preparing for a potential price collapse - and building up liquidity to avoid payment difficulties in the event of an emergency.

Signals of caution

The decision to increase capital could indicate that MicroStrategy is taking a more realistic view of the risks of a volatile or even falling Bitcoin price than in the past. Despite Michael Saylor's public proclamation that Bitcoin is the best store of value in the long term, this measure could be a signal that risks dominate in the short term.

External factors could play a role here: Macroeconomic uncertainties, higher interest rates or regulatory risks could put pressure on the Bitcoin market. MicroStrategy appears to be betting not only that the Bitcoin price will rise in the long term, but also that it will take precautionary measures if this does not happen immediately.

Protection against insolvency

One obvious interpretation is that the capital increase is intended to protect the company from potential insolvency if the price of Bitcoin plummets in the coming months. Liquidity could help to service liabilities, cover operating costs or secure loans. This defensive measure could therefore also be an indirect admission that even MicroStrategy is not invulnerable to Bitcoin volatility.

A turning point?

The capital increase raises the question of whether MicroStrategy is actually moving away from the "all-or-nothing" approach. Could the company be secretly taking a more conservative stance on Bitcoin, at least in the short term? Or does the move suggest that confidence in an immediate Bitcoin rally is waning?

Conclusion

The decision to raise capital in the current market environment could be a sign of caution. It could indicate that MicroStrategy is preparing for a phase in which the Bitcoin price not only does not rise, but perhaps even falls sharply. Whether this is a long-term change in strategy or just a hedge against market risk remains to be seen. But one thing is for sure: even MicroStrategy does not seem to be completely unconcerned about the future of Bitcoin.

WICHTIG❗️

At the end of the day, this is just speculation on my part. What do you think the capital increase is all about? Does Michael Saylor simply want to make the share more marketable?

Greetings, Don

16 Comments

Stefan21@stefan_21

1Wk

MicroStrategy holds 461,000 Bitcoin and not 152,000 :)
They are doing this to be able to issue more and more shares in the future to buy Bitcoin. Whenever the Bitcoin/share ratio can be increased, it should be done. If the ratio cannot be increased, no new shares will be issued. In my view, this has nothing to do with the Bitcoin price, but with having long-term room for maneuver.

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der_Don@der_Don

1Wk

@stefan_21 Thank you very much. I fixed the error straight away. I am of the same opinion as you. I just found it interesting to see the current situation of MicroStrategy from a different, perhaps even more skeptical, point of view. I myself am invested in Micro with 70% of my portfolio and am still very convinced of Michael Saylor👍🏼's business philosophy

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Stefan21@stefan_21

1Wk

@der_Don I am quite critical of Microstrategy. If it goes wrong, it could do a lot of damage to Bitcoin in the short term. Adoption by companies would probably be set back by years and Bitcoin would plunge into a deep bear market for the time being.
In my opinion, it will be dangerous if the Bitcoin price falls to the point where MSTR is no longer trading at a premium to Bitcoin on the balance sheet, but at a discount. At that point, they would no longer be able to issue shares to buy Bitcoin in a meaningful way. Demand for convertible bonds would probably also collapse. And when the time comes for them to repay bonds, they could run into payment difficulties. Then they would actually be forced to sell Bitcoin and their promise/business model would be gone. This could then become a self-reinforcing cycle that causes the store to implode.

The fact that Saylor and MSTR have already successfully survived a bear market and the convertible bonds all have very long maturities speaks against this :)

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der_Don@der_Don

1Wk

@stefan_21 Are you invested in MSTR? And if so, with what goal?

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Alexander_Bitcoin@Alexander_Bitcoin

1Wk

@stefan_21 and not forgetting a share split :) This also requires new shares to be issued. With a 10:1 split, we quickly reach 3 billion shares issued. Then the 10.3 billion possible shares don't seem so much anymore.

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Stefan21@stefan_21

1Wk

@der_Don I have added a small position to my portfolio. But it's not really relevant compared to my Bitcoin position :)
I'll just let it run its course and possibly sell it at some point and switch to Bitcoin.

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MC@Tokugawa

1Wk

@stefan_21 How high is the leverage or debt service? I thought the main source of financing is to issue new shares? How are they going to service the FC if BTC actually crashes? Because then selling BTC for liquidity would be the worst possible choice...I haven't looked at the numbers so I'm asking those in the community who are invested ;-)

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Stefan21@stefan_21

1Wk

@Tokugawa They issue new shares if this enables them to increase the Bitcoin/share ratio. The investors play along with the game, as they have more Bitcoin per share afterwards than before. Otherwise, dilution would be bad for investors.
And then they issue long-term convertible bonds at very low interest rates. At the end of the term, the buyers of the bond then have the option of acquiring shares at a predetermined price (which of course makes sense if the current price > the fixed price) or reclaiming the borrowed money + interest.
Microstrategy assumes that the Bitcoin price will be higher 5 years in the future than it is today and that the share price will therefore be significantly higher (convertible bonds usually run for 5 years). If this is the case, they can easily service the bonds forever with newly issued shares, for example.

But will that work forever? To be honest, I can't imagine. I don't know exactly how many bonds they have currently issued. I'd have to look that up too :)

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Bonchance@Bonchance

1Wk

I have sold Micro, the dilutions bother me. You trade shares because my shares want shares in a company. Why should Micro make money with my money? If so, I'll invest directly in Bitcoin myself from now on!

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der_Don@der_Don

1Wk

@Bonchance What is it about dilution that bothers you? In a capital increase you are granted subscription rights per share which you can either use to increase your number of shares or sell. In addition, the shares become more marketable, which means that small investors can also invest in MicroStrategy (theoretically).

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Tamas A.@threepillarsoflife

1Wk

@Bonchance If they issue new shares and use all the proceeds to buy BTC, you end up with more BTC per share than you currently have. You may own a smaller portion of the company, but each share you hold represents more BTC.

Why not buy BTC directly? Well, MSTR offers leverage—if BTC goes up or down, MSTR tends to move even more, making it more volatile. Additionally, some entities find it harder to purchase BTC directly, whereas MSTR is a stock. For example, I can easily invest some of my company’s funds into MSTR, which would be much more difficult to do with BTC. If you believe in Bitcoin and are willing to take the risk, MSTR offers a great solution.

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schnischnaschnappi@schnischnaschnappi

1Wk

Or Saylor simply needs the liquidity to buy more BTC. He has already issued new shares several times to increase his BTC holdings. Besides, he doesn't have a crystal ball either🔮

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