How MicroStrategy has benefitted from Bitcoin
MicroStrategy is a Pro-Bitcoin US business intelligence firm that has made a major investment in Bitcoin. Its former CEO, Michael Saylor, is a vocal Bitcoin bull and believes the cryptocurrency is a “hard asset” that can protect against inflation and is a better treasury asset than gold. Saylor has defended the investment, saying it is a long-term play and that he is confident in Bitcoin’s future.
MicroStrategy, with a stock that has increased by 130% over the year, has benefited from its Bitcoin investment, Michael Saylor said at the Bitcoin and Lightning for Corporation event that, in 2020, the company had $500 million in cash, showed no sign of an increase in value as well as no projection to increase in the near future. “The likelihood that $500 million in cash is going to be worth 5 billion in cash is zero,” he added.
He also noted that there was no assurance that the same money in cash would give birth to any interest that would generate returns that would beat the inflation rate of the US dollar.
“When you get high-interest rates on your government bonds you’re still not winning and when you have low-interest rates on government bonds” with an expansion of money supply at 10%, the yield is negative.
In this scenario, the former CEO said that MicroStrategy had to either return all its capital back to its shareholders and decapitalize while relying on a “forecast of future cash flow” or adopt Bitcoin.
Thus, “when we adopted Bitcoin as a treasury reserve asset we started by converting $250 million to bitcoin” after which due to the positive market feedback they got in their stock price, they bought another $175 million worth of bitcoin.
He added that they bought another $50 million, and then were able to “raise in succession $650 million in a convertible bond that yielded three-quarters of a percent interest.” This also led to MicroStrategy being able to raise $1 billion “in an equity offering” and more over time.
In essence, the Bitcoin Maximalist said that the enterprise value of MicroStrategy which was at $600 million thirty two months ago is now over $6 billion. With a balance sheet of about $4 billion in bitcoin, Michael said that the company was able to beat the market, did not decapitalize by returning its capital to shareholders, and its workforce was not subjected to work harder than expected to make the revenue the company got.
The outcome of the bitcoin investment has also allowed the company to focus and maintain its work on the vision and mission to develop the “world’s greatest business intelligence software”, he said, which was done by protecting MicroStrategy against inflation. “In the event that the dollar inflates at 20% a year, Bitcoin will probably appreciate 40%,” Michael added.
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