MicroStrategy infinite money glitch? Proceed with caution
If you’ve been following the wild world of finance, you might have noticed that MicroStrategy, a business intelligence company, seems to have stumbled upon a magic formula for making money. And I’m not talking about your run-of-the-mill, “we’re crushing it in sales” kind of money. I’m talking about the kind of money that makes you wonder if they’ve somehow figured out how to print the stuff.
So, what’s behind this financial wizardry? Well, it all starts with MicroStrategy’s love affair with Bitcoin. They’ve been investing heavily in the cryptocurrency, and it’s paid off big time. But here’s the thing: this revenue isn’t coming from their core business operations. Nope, it’s all about the Bitcoin.
They’ve been using convertible notes to fund their Bitcoin purchases. These notes allow investors to lend money to the company at a fixed interest rate, with the option to convert the debt into equity at a later date. And here’s the kicker: the conversion price is set at a premium to the current stock price. So, investors are essentially betting on the company’s stock price increasing in the future.
If the stock price does increase, the investors can convert their debt into equity, which would give them a significant return on their investment. But if the stock price falls, the investors are left holding a debt that may not be worth as much as they thought. It’s a bit of a gamble, but it’s one that’s paid off for MicroStrategy so far.
As some investors on Reddit have pointed out, MicroStrategy’s use of convertible notes has created a situation where the company can essentially “print money” by issuing more debt and using the proceeds to buy more Bitcoin. It’s a bit of a mind-bender, but it’s clear that MicroStrategy’s financing strategy is unconventional and has raised some eyebrows in the investment community.
So, what’s the takeaway from all this? Right now, I’d say that investing in MicroStrategy might not be the best idea. The company’s stock price is trading at an extremely high premium over its assets, which means that investors are essentially betting on the company’s ability to continue to grow its Bitcoin holdings and increase its revenue. But with the company’s history of issuing more shares to fund its Bitcoin purchases, existing shareholders are likely to see their ownership diluted.
In the long run, MicroStrategy’s strategy might pay off, but only if Bitcoin continues to skyrocket in value. We’re talking about a scenario where Bitcoin hits $500,000 to $1 million per coin. If that happens, MicroStrategy’s investment in Bitcoin will look like a genius move. But if Bitcoin’s price stagnates or falls, MicroStrategy’s stock price could take a hit.
So, if you’re thinking of investing in MicroStrategy, I’d say proceed with caution. The company’s financials are complex, and the risks are high. It’s not an investment for the faint of heart. But hey, if you’re feeling bold and think that Bitcoin is going to the moon, and have no other way to get exposure to BTC, then MicroStrategy might be worth a look (just make sure you do not over-invest and be prepared to hold over many years if BTC prices start dropping as shown over previous cycles).
Check out this Reddit thread and Substack for more on MicroStrategy’s “infinite money glitch”:
https://www.reddit.com/r/wallstreetbets/comments/1gzerax/mstr_has_an_infinite_money_glitch/