We often hear about MicroStrategy selling bonds to buy more Bitcoin, and at first glance, it might seem like Michael Saylor is taking a massive risk. But do we really understand what’s going on behind the scenes?
Here’s the breakdown:
MicroStrategy regularly announces plans to sell bonds with an 8-year maturity (2032), allowing Saylor to navigate two full Bitcoin cycles. This year alone, they've sold $603 million in bonds in March at a mere 0.875% interest, and another $700 million in July at 2.25%. These are exceptionally low interest rates, almost like borrowing money for free.
So, why are investors interested in bonds with such low rates when government bonds offer 5% annual interest? Why do shareholders back Saylor’s constant borrowing to buy Bitcoin?
The secret? It's less about the interest rate and more about the conversion option. Investors can convert these bonds into MicroStrategy shares, which have surged by 124% this year, 315% over the past year, and an astonishing 1,113% since they started buying Bitcoin in August 2020. Even NVIDIA (one of the top-performing stocks) has only grown by 1,049% in that time.
For investors, the bond conversion is the key. They either get to convert the bonds into high-profit shares or simply get their capital back at maturity. Essentially, it's a win-win—either they capitalize on the stock’s gains or recover their initial investment.
In fact, in June of this year, MicroStrategy converted $650 million in bonds into stock, showing just how profitable this strategy can be.
What’s in it for MicroStrategy?
- They get interest-free capital to buy more Bitcoin.
- Shareholders benefit from rising stock prices, making it possible to sell at a profit.
- Bondholders can convert to shares or wait for 8 years (or two Bitcoin cycles) to see the results.
In essence, Michael Saylor is playing a long game. By leveraging bonds and stock, MicroStrategy is almost "printing money" to accumulate Bitcoin. It’s a smart strategy for any publicly traded company that believes in Bitcoin’s future—and it’s no surprise that others, like MetaPlanet, are starting to follow this blueprint.
Of course, there’s always risk. If Bitcoin fails, MicroStrategy could face bankruptcy. But as long as Bitcoin continues to thrive, you can bet Saylor will keep acquiring it.
Credit: Thuan Capital