Each day, Coinrule will run through the state of the digital assets market for Blockbeat, your home for news, analysis, opinion and commentary on blockchain and digital assets
Sam Bankman-Fried. Changpeng Zhao. Do Kwon. Michael Saylor. Previously, these names, and their success and failure drove crypto markets. Today, only one is still standing: Michael Saylor and his beloved company MicroStrategy (MSTR).
MSTR has been the primary choice for investors to gain equity exposure to Bitcoin. MicroStrategy’s Bitcoin holdings make up ~84% of the company’s market cap. Advantages versus ETFs include being actively managed with no management fee and utilising leverage to increase returns. It is also connected to a cash flow generating business and can leverage this to obtain financing to fuel further Bitcoin buying.
At times, MicroStrategy’s Bitcoin accumulation strategy sounds risky, if not outright hazardous. It consists of the company issuing bonds or new stock and acquiring Bitcoin with the funds. Their buying then causes the price of Bitcoin to increase. This increases the value of MSTR’s BTC holdings, leading to MSTR’s stock price increasing. MicroStrategy can continue this cycle whilst issuing less new stock as MSTR’s price increases together with the Bitcoin price. This works on the way up, less so on the way down. MSTR now holds 190,000 BTC. But the company successfully survived Crypto Winter. Their stock price increased by over 400% from their first purchase in August 2020 and is up +43% over the past 2 weeks.
There were discussions last week on X about MicroStrategy being included in the S&P 500 index. The S&P 500 has strict requirements for inclusion, but an inclusion would lead to additional demand as funds would purchase MSTR to fulfil their required allocations for S&P 500 ETFs and portfolios. This would add another bullish element to the flywheel. The increasing market cap of MSTR would increase allocations from funds and increase MSTR’s price. The company would then issue new stock and buy more BTC.
The key question mark around the entire MSTR strategy is that Bitcoin’s price must continue to rise. However, with ETF inflows increasing BTC demand, the Bitcoin halving in 2 months lowering supply emissions along with potentially dropping interest rates, it is hard to be bearish. If BTC keeps going up, we could potentially see a leveraged Bitcoin ETF, in the form of MSTR stock, included in every pension plan. Michael Saylor would not only be the last man standing but also silence his critics. As Charlie Munger once said, avoiding stupidity can be easier than thriving for brilliance.