- Bitcoin price rally can put MicroStrategy’s convertible deep in the money
- MicroStrategy has played a classic ‘heads I win, tails we tie’ game
- Shares of the firm are now tied with the price of the leading crypto token
Bitcoin remained a valuable asset for MicroStrategy since October 2020. The firm issued convertible debt bonds last month, intending to fuel its Bitcoin fund. The enterprise software maker opened a backdoor for bond investors to play the cryptocurrency craze with the move. However, the outsiders believed that the offering is strange or a head slapping moment, as very few cash-flow-generating firms tap this corner of capital markets. Especially when it comes to funding the purchases of the leading crypto asset. The individuals who bought the bonds are sitting pretty, as the broken momentum of the token has not affected it.
MicroStrategy is playing risk-free “Heads or Tails” on Bitcoin bet
According to Dave King, the portfolio manager of Colombia Convertible Securities Fund, the move of MicroStrategy is a classic game of “Heads or Tails,” which consists of no loss. This means, if its heads and Bitcoin gains a bullish momentum, the firm will win if its tails and the token gains bearish momentum, then they can get their money back. The explanation can be applied across the convertible bond issued by MicroStrategy.
Shares of MicroStrategy is tied with cryptocurrency
Last year’s bullish bet by the firm on the flagship cryptocurrency has tied its share with cryptos. Now, the doubling of the price of Bitcoin will double the price of MicroStrategy’s shares. The aforementioned fact will also help the firm to push the convertible deep into the money. The initial convertible price was $397.99, which is now sitting at $587. According to Michael Saylor, if BTC crashes by 30% to 40%, the firm can also pay off the bonds.
On the other side, there is an unquestionable comfort level in a Bitcoin play for the bond investors. According to King’s estimations, the value of MicroStrategy’s Bitcoin holding is near $800 million to $1.4 billion. Whereas the firm’s midpoint of that estimation would imply, an estimated Bitcoin stash is near 22% of its total $5 billion market cap.
MicroStrategy has passed on the bond
According to Craig Manchuck, a portfolio manager at Osterweis Strategic Income fund, MicroStrategy has passed on the bond. He also mentioned that by observing the barometer, it seems like the market has become highly speculative. The investors truly fear missing out, just as the teenagers feel when they sit out at a party. Manchuck highlighted that the industry investors are not only in the business of investing in the most famous crypto token of the world.
We are sorry that this post was not useful for you!
Let us improve this post!
Tell us how we can improve this post?