The head of the world’s largest institutional crypto investor, Michael Saylor, recently qualified its investment strategy consisting of purchasing huge amounts of Bitcoin on behalf of its company MicroStrategy as a “tremendous success”.
These comments were embedded within a letter directed to MicroStrategy’s shareholders ahead of the Annual Meeting of Stockholders, which is scheduled to occur on 25 May this year.
The controversial CEO and crypto enthusiast stated that the company plans to keep pursuing this strategy “vigorously”.
According to the letter, MicroStrategy currently owns 129,218 bitcoins. These holdings are worth around $5.24 billion based on today’s market price. Based on the figures disclosed by Saylor, the company is sitting on around $1.27 billion in unrealized gains on its Bitcoin holdings based on the firm’s average purchase price of $30,700 per coin.
MicroStrategy’s Bitcoin position remains the largest among any publicly-traded corporation followed by Tesla’s stash of around 43,200 coins.
MicroStrategy Recently Used Debt to Acquire BTC
Back on 29 March, Microstrategy announced that it secured a $205 million term loan from Silvergate Capital Corporation backed by a portion of the firm’s Bitcoin holdings to keep acquiring the digital asset.
In regards to the transaction, Saylor stated: “Using the capital from the loan, we’ve effectively turned our bitcoin into productive collateral, which allows us to further execute against our business strategy”.
This has been one of the most aggressive moves undertaken by a large corporation to buy Bitcoin as it involves the use of leverage with the expectation that the value of the digital asset will continue to rise in the future.
By the end of the fourth quarter of 2021, digital assets accounted for around 80% of MicroStrategy’s balance sheet. Back then, total assets stood at $3.58 billion while the firm’s long-term debt sat at $2.16 billion.
As a result of the strong contribution of Bitcoin to the book value of the firm, the performance of MSTR stock remains highly correlated with that of the digital asset.
This correlation has been strengthening recently as the cryptocurrency market has experienced a sharp downturn amid a shift in macroeconomic conditions including a tightening in the monetary policy adopted by the Federal Reserve in the United States.
Analysts’ Predictions and Comments About MicroStrategy
MicroStrategy’s exposure to Bitcoin has made the task of predicting where the price of its stock may land in the future quite difficult for Wall Street as this involves forecasting where Bitcoin will stand by then as well.
At the moment this is written, the consensus recommendation for the stock stands at hold and at least two analysts have stopped covering MSTR due to this shift in its core business and fundamentals. BTIG Research and William Blair are the two firms that are currently rating the stock a buy.
BTIG set a 12-month price target of $950 per share for MSTR back in January. Analysts from the financial services firm deemed Saylor’s strategy of allocating a large portion of the company’s treasury into Bitcoin as a “rational action” that aimed to protect the firm’s share value in the current macroeconomic environment.
Their price target for the stock was determined based on a forecasted price of $95,000 for Bitcoin by the end of 2022.
Crypto assets are highly volatile unregulated assets. Your capital is at risk.