According to CoinDesk, MicroStrategy's ambitious plan to acquire an additional $42 billion in bitcoin is fraught with potential risks, as highlighted by CoinShares in a recent research blog. The company, led by Michael Saylor, recently announced a $21 billion at-the-money stock offering to fund its bitcoin purchases, aiming to accumulate the substantial amount over the next three years.
CoinShares analysts Alexandre Schmidt and Satish Patel emphasized that MicroStrategy's success in executing this strategy hinges on several critical factors. The company requires favorable financing conditions and sustained investor demand for its convertible debt. However, the cost of servicing its debt is increasing. In 2021, MicroStrategy managed to raise funds through zero-coupon convertibles, but recent issues have seen rising coupon rates.
The report also pointed out that MicroStrategy is heavily reliant on its bitcoin holdings. If the company decides to sell part of its bitcoin reserves, it risks losing its valuation premium. Despite this, Michael Saylor has previously stated his reluctance to sell, describing bitcoin as the "exit strategy." Additionally, any sale could lead to significant tax implications, with potential future taxation on unrealized gains from its crypto assets.
CoinShares further noted that MicroStrategy's bitcoin-focused business might have surpassed its traditional software operations, raising concerns about whether cash flows from these legacy operations can cover future coupon payments. Despite the potential dilution from the large financing, investors have continued to show confidence in the firm's stock. Last week, Wall Street broker Canaccord highlighted MicroStrategy as a prime option for equity investors seeking bitcoin exposure. On Tuesday, MSTR shares rose approximately 8% in early trading as bitcoin prices approached $70,000.
