MicroStrategy’s aggressive bitcoin policy – a threat to the US dollar?

Michael Saylor blows the whistle: MicroStrategy’s aggressive Bitcoin policy

MicroStrategy knows no stopping now. The company wants to invest another $1 billion worth of Bitcoin in Bitcoin and is borrowing money again to do so. How much further can Michael Saylor go?

He has done it again. Last Wednesday, 17 February, the news reached us that MicroStrategy, under the leadership of its charismatic CEO Michael Saylor, will once again invest in Bitcoin. After the company had already started to convert its cash reserves into Bitcoin Code in the summer of 2020, the latest motto is: buy on credit.

In December last year, the company began issuing bonds, so-called senior convertible notes. According to the prospectus, the proceeds from the bonds were to flow into BTC in order to further increase the position.

Whoever thought that MicroStrategy’s management was satisfied with this was wrong. As a press release shows, the first issue of notes was still comparatively small with a volume of 400 million US dollars (USD). In the latest securities issue, the company states a funding target of one billion US dollars.

The most piquant detail, however, is the interest rate on the securities. It is zero.

Dollar slide

It must be said in no uncertain terms: what Michael Saylor is doing here is an orchestrated attack on the US dollar as the world’s reserve currency. Because due to the loose monetary policy that the central banks have been pursuing since March 2020 with a view to the COVID pandemic, fiat money is currently available at zero cost. And this is what the business intelligence firm, which acts like a kind of leveraged Bitcoin hedge fund in the stock market, is taking advantage of.

The base money supply of the US dollar, for example, has almost doubled since the beginning of the pandemic, as can be seen in the following chart.
Base money Fed. Image source: Fred.

One consequence of this unprecedented flood of liquidity is low interest rates. Ten-year German government bonds are currently yielding about -0.34 per cent. What was unthinkable years ago is now reality: those who lend money are not rewarded for foregoing liquidity, but are guaranteed to receive less in return.

From this point of view, the zero interest on MicroStrategy’s senior notes is almost a good deal. The bottom line is that Saylor is doing everything it can to get the US dollar off its books.

It is obvious that companies should exchange US dollars that are guaranteed to lose value for something that is guaranteed to gain value,
Michael Saylor

Bond sell-off would be bullish signal for bitcoin

Now, corporate bonds are fundamentally riskier than government bonds. After all, unlike governments, private companies must submit to the rules of the market and do not have a central bank partner with unlimited liquidity on their side.

From this point of view, the issuance of the bonds is not only a courageous step on the part of Michael Saylor. If the company manages to raise a billion US dollars, it will be an extremely bullish signal for Bitcoin.

To understand this, one must know that, according to the prospectus, the convertible notes can be exchanged for exactly 0.6981 MicroStrategy shares (ISIN: US5949724083/ Ticker: MSTR) per unit. The nominal value per senior note is USD 1,000. At an MSTR price of USD 941, this translates into a premium of a good 52 percent.

In other words: If you invest in the MSTR bonds now, you will only make a profit when the company’s share price rises by at least 52 percent. Since the share price develops proportionally to the BTC price, investors are clearly betting on a further rise in the price of the cryptocurrency.

For the time being, however, investors are taking a negative view of the project. Since the announcement of the bond issue, MSTR has fallen by 5 per cent.