MicroStrategy leads bitcoin capital markets

The broker notes that to date MicroStrategy has raised $4 billion of convertible debt for the sole purpose of buying more bitcoin

MicroStrategy (MSTR) is not just a software company diversifying its corporate treasury into crypto currency, it is pioneering bitcoin capital markets, broker Bernstein said in a research report on Tuesday.

MSTR is the only corporate that has developed institutional demand for bitcoin linked convertibles, analysts Gautam Chhugani and Mahika Sapra wrote.

The broker notes that to date MicroStrategy has raised $4 billion of convertible debt for the sole purpose of buying more bitcoin. A convertible bond is a type of debt security that can be converted into shares. Michael Saylor’s company currently holds 214,400 bitcoin worth nearly $14.5 billion. It started buying the crypto currency as a reserve asset in 2020. No other corporate has an active bitcoin investing strategy that can attract capital at scale, the authors added.

MicroStrategy’s long-term convertible debt strategy means it has enough time to benefit from potential bitcoin upside with limited liquidation risk to the crypto on its balance sheet, the note added.

When bitcoin rises MicroStrategy has more room to issue new debt, conversely when the crypto drops and leverage rises, the company can issue new shares to cut leverage, Bernstein noted.

This use of both equity and debt has seen MicroStrategy grow its bitcoin per equity share around 67% in the past four years, the report added.

Bernstein notes that MicroStrategy has not sold any bitcoin since it started buying the crypto in 2020, and it expects the firm to continue to raise capital to add to its stash.

The broker has an outperform rating on MicroStrategy stock with a $2,890 price target. The shares erased a decline of 2.5% to trade little changed near $1,509.