‘Other companies will follow’ — MSTR stock up 9% after buying Bitcoin

MicroStrategy stock price jumped once again after announcing it has bought a total of $425 million in Bitcoin to date, but will other companies follow in their footsteps?

The Nasdaq-listed firm MicroStrategy (MSTR) is continuing to purchase hundreds of millions of dollars worth of Bitcoin (BTC), resulting in its company stock price to gain over 9% on Sep 16. 

MSTR stock recovers to pre-Covid levels after buying Bitcoin 

MicroStrategy first announced the firm is purchasing Bitcoin on Aug. 11, after which its stock price surged by over 10%. 

Now, MSTR price has once again risen in a similar fashion after confirming yesterday that it doubled down on adopting a “Bitcoin standard,” buying over 38,000 BTC worth $425 million at an average price of $11,111. 

“We just had the awful realization that we were sitting on top of a $500 million ice cube that’s melting," CEO Michael Saylor told Coindesk. 

“This is not a speculation, nor is it a hedge. This was a deliberate corporate strategy to adopt a bitcoin standard.”

MSTR stock price

MSTR stock price. Source: TradingView.com

Datavetaren, a pseudonymous software engineer, said other companies will follow MicroStrategy. He wrote:

“MicroStrategy is adopting a #bitcoin standard. Other companies will follow. Finally, central banks will follow (Switzerland likely to be the first.) A new gold standard for the digital age. A neutral store-of-value will create more check and balances for governments.”

What are the risks of MicroStrategy’s Bitcoin accumulation strategy?

According to Joe Weisenthal, the host of “What’d You Miss?” on Bloomberg, the revenue of MicroStrategy steadily declined since 2013.

The revenue of MicroStrategy since 2011

The revenue of MicroStrategy since 2011. Source: Joe Weisenthal

The company needed new ways to vamp up and gaining exposure to Bitcoin and making BTC its primary treasury asset is quickly becoming one of its major strategies.

Typically, safe-haven assets like gold and real estate are perceived as a hedge against inflation. They are like insurance rather than investment, providing balance to the portfolio.

Bitcoin has the potential to achieve both; it could act as a hedge against inflation and potentially outperform many asset classes over time.

Barry Silbert, the CEO of Grayscale, said the purchase might become the worst or the smartest CEO decision of all time.

There is an enormous amount of risk MicroStrategy is taking to secure such a large holding of BTC. But if BTC explosively grows over the long term, it could be a significant catalyst for the stock. Silbert said:

“This will go down in history as one of the smartest or worst CEO decisions of all time. Case studies and books will be written about it. Either way, it took enormous guts for a public company CEO and I commend him for the courage.”

Don’t celebrate MSTR stock like an ETF

One problematic sentiment around MSTR stock is that some celebrate it as a loophole for an exchange-traded fund (ETF). 

While the company has a large exposure to Bitcoin, Compound Finance’s general counsel Jake Chervinskey said such a loophole is non-existent. He also noted that if the firm continues to buy more BTC, the U.S. Securities and Exchange Commission (SEC) could begin inquiring about it. He said:

“No, there isn't a loophole in the federal securities laws allowing a publicly traded company to convert itself into a bitcoin ETF without SEC approval. The more bitcoin $MSTR buys, the more likely the SEC is to start asking questions that @Nasdaq doesn't want to answer.”

Publication date: 
09/16/2020 - 13:51
Author: 
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