(Bloomberg) — MicroStrategy Inc. bought another $2.1 billion worth of Bitcoin, while the combination of stock and fixed income sales to finance rapidly increasing acquisitions comes under increasing scrutiny.
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It was the fifth consecutive Monday that the Tysons Corner, Virginia-based company announced the purchase of the digital assets. Co-founder and chairman Michael Saylor has amassed Bitcoin worth more than $41 billion over the past four years after deciding that the small software maker needed to take a different path to survive. He accelerated the strategy shift in October by announcing plans to raise $42 billion over the next three years through an evenly balanced combination of market share sales and convertible bond offerings.
MicroStrategy acquired 21,550 tokens between Dec. 2 and Dec. 8 at an average price of about $98,783, according to a U.S. Securities and Exchange Commission filing on Monday.
The company has rapidly accelerated its Bitcoin purchases. While it took almost a year to collect the first 100,000 tokens, it only took two weeks to go from 300,000 tokens to 400,000. With his large supply of Bitcoin, his assets are worth more than the cash holdings of Nvidia Corp., and all but six of the non-financial companies listed on the S&P 500 Index.
With MicroStrategy’s recent increased Bitcoin purchases, the company has purchased tokens at an average purchase price above Bitcoin’s average price for four of the past five weeks that it has been purchasing tokens.
The nearly 500% rise in the company’s shares this year has fueled investor demand for the stock. At the same time, hedge funds have snapped up the notes, which are used in market-neutral arbitrage bets that take advantage of rising volatility in the underlying asset. MicroStrategy was among the most volatile US stocks this year. MicroStrategy fell 7.5% to $365.34 on Monday.
The danger is that cryptocurrency’s massive, years-long rally may reverse, in which case ever-increasing bets on its value could have dire consequences for its owners. Bitcoin has risen more than 130% since December last year.
The company’s reliance on Bitcoin to meet its financial needs could prove risky, said Min Jung, research analyst at Presto Research.
“For now, Bitcoin’s favorable price movement allows MicroStrategy to maintain a positive feedback loop: rising MSTR stock prices enable additional fundraising, which funds further Bitcoin purchases, driving Bitcoin prices and stock values higher,” he said. “While effective during a bull market, the sustainability of this strategy depends heavily on Bitcoin’s continued price appreciation.”
MicroStrategy did not immediately respond to requests for comment. In an October 31 fill, the company noted that “a significant decline in the market value of Bitcoin could have a material adverse effect on our financial condition. Any material adverse effect on our financial condition caused by a significant decline in the market value of our Bitcoin investments could create liquidity and credit risks to our business as we would have limited resources to obtain cash in excess of the income generated by our business analytics software. company.”
If Bitcoin prices were to suddenly drop, MicroStrategy’s ability to service its growing debt could be at risk, says Gracy Chen, CEO of crypto exchange Bitget. The consequences of this could extend beyond the company.
“The company’s huge BTC holdings have also created a market concentration risk, where any large-scale sell-off could lead to significant price fluctuations, impacting not only Bitcoin, but the entire cryptocurrency ecosystem,” Chen said.
–With help from Tom Contiliano.
(This updates the value of the company’s Bitcoin holdings and adds the closing share.)
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