Key Insights:
MicroStrategy has maintained a very delicate balance between debt and its investments, which has paid off.
MicroStrategy ($MSTR) is now a part of the Nasdaq 100 index.
The company, which once saw an unrealized loss of $1 billion in June 2022, now sits on a profit of $20 billion.
Despite all these purchases, Bitcoin is unlikely to be centralized in the future.
On 16 December 2024, MicroStrategy acquired another 15,350 Bitcoins for a little over $1.5 billion, making it the 14th publicly known purchase this year.
The average buying price of Bitcoin for MicroStrategy now sits at $61.5k, roughly 40% lower than the current market price, which then results in a yield rate of 73.67% in 2024.
With this purchase, MSTR now commands a Bitcoin reserve of $47 billion and has 437k Bitcoins. These Bitcoins represent over 2.09% of the total circulating supply in BTC.
The company has recently entered the Nasdaq 100, which lets it access index funds and attract more investors. These investors would then appreciate the value of its stock, allowing it to buy even more Bitcoin. At press time, $MSTR was trading around $408 with a market cap of $100 billion.
At press time, Bitcoin was trading around $107k, very close to its ATH of $107.78k that it made earlier today.
Led by visionary Michael Saylor, MSTR went through several rough waters to reach this stage, with experts once citing his approach as unsustainable. Saylor's approach of buying assets with debt and then clearing the debt when the asset sees an increase in valuation has been a key debate in economics, with most academics and practicing professionals advising against it.
MicroStrategy's success leaned on Saylor's conviction that Bitcoin would inevitably rise as a major asset class among other mainstream assets like bonds, stocks, and gold. This conviction was tested a lot of times when the company saw a total unrealized loss of $1 billion when Bitcoin was in the middle of crypto winter.
Saylor and MicroStrategy could endure these harsh times not because of their conviction and vision but mostly because of the ingenious debt-structuring through which MSTR has been purchasing Bitcoins.
All of MicroStrategy's debt is based on convertible bonds, which means that if MicroStrategy cannot pay back its debt, the creditors would have no option other than to take the shares of MSTR as repayment.
So when MSTR was in a $1 billion unrealized loss, its creditors chose to stay put because if they had recalled their debt, they would have caused a crash in MicroStrategy's stock price and lost most of their money.
Now, when the company is in profit, these investors enjoy at least a 100% appreciation in their invested funds, should they choose to cash out via stocks.
Several companies across the world have been trying to repeat the success of MicroStrategy. Among them, a few notable are Metaplanet, Marathon Digital, and Riot Platforms.
Metaplanet is a Japan-based asset management company owned by Redplanet Hotels, a Japanese multi-national hospitality brand. The company has lately followed MicroStrategy's debt financing method for its Bitcoin purchases. Since debt is cheap in Japan, it's borrowings are often at 0% interest.
Marathon Digital has been a key player in Bitcoin markets and has recently made a $1.1 billion BTC purchase a week ago. The company now holds around 40,000 Bitcoins.
Riot Platforms is a Bitcoin miner and, unlike other companies, acquires most of its Bitcoin via mining. The company has acquired 667 Bitcoins for 67.5 million today.
A lot of centralized entities like governments and companies have either acquired or have been acquiring Bitcoin, like top buyers like El Salvador and MicroStrategy. With so many buyers, Bitcoin faces a centralization risk, which is against the true philosophy of cryptocurrency and Web3.
We can also add ETFs to the list that pool funds from small and large investors but are run via a centralized system.
Bitcoin was never meant to be centralized and possibly will never be so. This is because Bitcoin is far too decentralized and to manipulate the chain, which is the greatest risk of centralization, you need to own 51%.
Even after acquiring over $47 billion worth of BTC, MicroStrategy only holds a little below 2.1%. Also, all the Bitcoin ETFs, globally put together, own another 5.6%. Lastly, if we even put together all the large but independent holders, it is still 12%, way less to control the majority of nodes.
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