Topline
MicroStrategy, the data analytics firm helmed by billionaire cryptocurrency bull Michael Saylor, announced Tuesday that one of its subsidiaries has taken on a $205 million loan to buy more bitcoin and is using the cryptocurrency as collateral, again doubling down on its unprecedented commitment to the world’s largest cryptocurrency as the nascent market stages a turnaround.
MicroStrategy tacked on to its growing debt load as the price of bitcoin skyrockets from this … [+]
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Key Facts
In a Monday morning regulatory filing, MicroStrategy disclosed that its wholly owned subsidiary, MacroStrategy, entered into an agreement with crypto-focused lender Silvergate Bank on Wednesday to take on a $204.7 million loan, net of closing fees and expenses, that it plans to use to buy bitcoin, pay loan expenses or for general corporate purposes.
The three-year loan was collateralized with about $820 million in bitcoin, representing about 12% of MicroStrategy’s overall cryptocurrency holdings; deal terms require at least $410 million worth of bitcoin to be held in collateral, assuming that the full principal of $205 million remains.
In a statement, Saylor said the loan gives MicroStrategy an opportunity to “further [its] position” as the public company with the largest bitcoin investment and that using the cryptocurrency as collateral on the loan, a first for the company, would allow it to further execute against its bitcoin strategy.
The company, which started buying cryptocurrency for its balance sheet in August 2020, says it now holds approximately 125,051 bitcoins, purchased for nearly $3.8 billion, or an average price of $30,200 per coin—some of which has been purchased with the help of about $2.2 billion in debt taken on before last week.
MicroStrategy shares ticked down about 0.6% Tuesday morning and have fallen about 9% for the year, compared to a 5% decline for the S&P 500.
The price of bitcoin, meanwhile, climbed about 1% to $47,803 after turning positive for the year on Monday.
Okay, I added in a bullet: Crypto bank Silvergate tripled its profit to $78.5 million last year as average deposits from digital currency customers jumped to a record $13.3 billion and its bitcoin-backed loan portfolio grew to about $570.5 million in commitments; Bank of America recently gave the stock a $200 price target (implying 50% upside), saying the bank’s “first mover advantage” bodes well, given increasing institutional adoption.
Tangent
Resurgent cryptocurrency prices have fueled a stunning turnaround in the market over the past week, as bitcoin skyrocketed nearly 25% amid positive developments such as Goldman Sachs’ first bitcoin option trade and BlackRock’s investor note pointing out that the war in Ukraine could accelerate adoption of digital currencies.
Crucial Quote
“[Bitcoin] is now edging nearer to the important $50,000 level. . . . Should it also surge through this key price marker, we expect the current bull run would become supercharged as crypto FOMO would kick in,” Nigel Green, the CEO of wealth advisory DeVere Group, said in emailed comments Tuesday.
Key Background
Thanks to its growing bitcoin investment—rivaled only by Tesla’s 42,000 coins—MicroStrategy has minted a stunning turnaround since the dot-com bubble tanked its stock price roughly two decades ago. Shares have skyrocketed more than 300% since the company first started buying bitcoin. However, prices have also been incredibly sensitive to the nascent crypto market’s outsize volatility. Battered over the past year, the stock has crashed 51% from a 21-year high in February 2020, when recently skyrocketing bitcoin prices plummeted after Tesla CEO Elon Musk said on Twitter that its prices seemed “a little high.”
Big Number
$2.3 trillion. That’s the value of the world’s cryptocurrencies Tuesday after climbing more than 15% in the last week. The market peaked at more than $3 trillion in value on November 10, according to crypto data website CoinGecko.
Further Reading
Bitcoin’s Biggest Corporate Backer Announces $94 Million Investment (Forbes)
This Under The Radar California Crypto Bank Just Reported Record Earnings (Forbes)
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