When asset prices soar, common sense goes by the wayside. This isn’t to suggest that Bitcoin (BTC-USD) holders don’t have common sense, although there does seem to be an abundance of irrational exuberance on Wall Street nowadays.
Actually, I respect individuals and businesses that bought bitcoin late last year at $16,000. It’s easy to say this in hindsight, but that was the right time to load up on the cryptocurrency.
However, buying large quantities of bitcoin now is a different story entirely. Yet, as MicroStrategy (NASDAQ:MSTR) deploys a not-so-micro strategy of buying bitcoin at high prices, investors should wonder whether its management has common sense — or is uncommonly senseless.
Another day, another bitcoin breakout
Is it a blessing or a pitfall that bitcoin trades all day and all night, day in and day out? For folks who like to like to celebrate fresh all-time highs, 24/7 bitcoin trading evidently isn’t a problem at all.
Lately, it seems like every day (or at least, every few days) offers another high for bitcoin. The last time I checked, the cryptocurrency was on the cusp of breaking above $73,000.
Pretty much any excuse will suffice as a catalyst now. The latest bitcoin pump arrived in tandem with The Wall Street Journal’s report that the “U.K.’s Financial Conduct Authority said it would allow exchanges to offer… exchange-traded notes backed by cryptocurrencies… to institutional investors.”
Of course, this is a similar move to the Securities and Exchange Commission (SEC)’s approval of spot bitcoin exchange-traded funds (ETFs) earlier this year. One has to wonder though whether it’s really all that surprising that U.K. regulators would approve cryptocurrency-backed funds.
It was bound to happen sooner or later, but when the market is in a euphoric mood, positive surprises don’t even have to be surprising anymore. As long as bitcoin is in the headlines, someone or something is ready to hit the “buy” button.
Apparently, MicroStrategy is hitting the “buy” button with no hesitation. Founder and Chairman Michael Saylor’s recent X post summarizes his company’s latest crypto shopping spree:
There’s a lot to unpack here, so let’s start unpacking.
Crypto strategy: Borrowing to get rich?
As the graphic displayed in Saylor’s posting states, MicroStrategy acquired an additional 12,000 bitcoins and now holds 205,000 bitcoins. I can’t exactly claim that MicroStrategy bought that last bitcoin batch at the top. However, at around $68,477 per bitcoin, I might accuse Saylor and his company of price chasing.
Of course, bitcoin enthusiasts would probably claim that buying at $68,477 is a brilliant move. After all, they’re likely preparing for the cryptocurrency to reach $100,000 or $250,000 or more.
Still, value seekers might wince at the thought of bulking up on bitcoin as it goes vertical. Meanwhile, clear-minded investors may have questions about how MicroStrategy is choosing to pay for its most recent bitcoin splurge.
Again, we can refer to Saylor’s posting for clarification. As you can see, he reported that MicroStrategy bought $821.7 million worth of bitcoin “using proceeds from convertible notes & excess cash.”
This would be easier to support if it were only excess cash. Loading up on a volatile asset that’s going parabolic might not be the best use of surplus capital, but at least it might be money that MicroStrategy could afford to lose.
The alarming part is “using proceeds from convertible notes.” To keep it simple, we can consider “convertible notes” as corporate bonds; naturally, they will have to be paid back with interest.
Those details aren’t in Saylor’s X posting, but they can be found in MicroStrategy’s press release. Almost as proudly as Saylor announced MicroStrategy’s latest bitcoin purchase, the company disclosed its $800 million offering of 0.625% convertible senior notes, which will mature in 2030.
MicroStrategy borrows and buys — and the market celebrates
Perhaps it’s just a sign of the times. Irrespective of whether MicroStrategy’s borrow-and-spend gambit makes sense or not, the market enthusiastically pushed MSTR stock up 5.5% upon the announcement.
With that, MicroStrategy shares stand above $1,500, having tripled in price over the past year. As a result, prospective investors are left with a decision to make.
If you’re on board with MicroStrategy’s bitcoin hoard — and aren’t opposed to the company’s unabashed borrowing — then you can certainly choose to buy MSTR stock now. Alternatively, you can stay on the sidelines, marvel at MicroStrategy’s buy-near-the-highs spending binge, and quite possibly, avert an oncoming disaster.
