Bitcoin mining companies are learning from MicroStrategy's robust financial strategy, with Riot Platforms and MARA Holdings being the next names to join this trend by issuing convertible bonds to purchase Bitcoin.
Today, these companies are not just participating in the transaction validation process and receiving rewards; instead, they are applying CEO MicroStrategy, Michael Saylor's tactics to turn their resources into a Bitcoin accumulation machine.
The attention from Wall Street towards MicroStrategy has surged – the company's stock has risen over 600% this year – with many funds taking advantage of Bitcoin's strong volatility through arbitrage strategies.
However, Riot and MARA have not achieved the same success as MicroStrategy. Since this software company began buying Bitcoin in 2020, stocks of Riot and MARA have seen declines and have yet to return to their 2021 highs.
Additionally, the Bitcoin halving event in April did not help much, as it reduces the rewards that miners receive for adding new blocks to the blockchain, significantly impacting profitability. Moreover, the increasing competition in the Bitcoin mining industry makes it challenging for these companies to maintain their positions.
However, Riot's convertible bonds have attracted attention due to the attractive conversion fee – 32.5%, lower than the 55% in MicroStrategy's bond issuance in November.
Furthermore, Riot is also facing pressure from Starboard Value, a large investor, to encourage the company to pivot part of its operations towards Hyperscalers*, focusing on data rather than just Bitcoin mining.
Analysts are currently expressing skepticism about the sustainability of the convertible debt strategy for accumulating Bitcoin. Stephen Glagola from JonesTrading believes that increasing Bitcoin holdings naturally through mining activities would be a more sustainable approach.
Meanwhile, BlackRock, an investment giant, has shown caution in endorsing Bitcoin as part of a diversified investment portfolio, suggesting that investors should allocate a maximum of 2% to Bitcoin if they can accept its volatility.
MicroStrategy is currently aiming to join the Nasdaq 100, a move that could bring substantial passive capital into the company's stock. However, some critics argue that the heavy reliance on Bitcoin could make the company no longer a true tech company, but merely a financial entity.
Nevertheless, the strategy of accumulating Bitcoin has helped MicroStrategy achieve a market capitalization of up to 98 billion USD, even though the company's software business is not particularly bright. Although the third-quarter financial report showed a net loss of 340 million USD, the company's stock still surged thanks to this strategy, despite many skeptics questioning the sustainability of this model.
MicroStrategy has positioned itself as the 'Bitcoin Treasury Company', which could help the company join the Nasdaq 100, as this index does not include companies from the financial sector. However, James Seyffart, an analyst at Bloomberg Intelligence, warns that the reclassification of the company could face challenges in the future, which could affect MicroStrategy's qualification.
*'Hyperscalers' is a term used to refer to companies or organizations that use large-scale data centers with the ability to rapidly scale to meet massive data processing and storage demands. These companies often build and operate large-scale cloud infrastructure, such as Amazon Web Services (AWS), Microsoft Azure, Google Cloud, and other cloud computing service providers.
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