The Bitcoin-buying strategy of MicroStrategy, which is supported by convertible notes, has motivated miners such as MARA Holdings and Riot Platforms to implement comparable strategies in order to accumulate Bitcoin.
Bitcoin producers are literally copying MicroStrategy’s aggressive financial strategy. MARA Holdings and Riot Platforms are currently adhering to the practice of issuing convertible notes in order to purchase Bitcoin.
It is evident that these individuals are no longer content with merely validating transactions and earning rewards. Rather, they are imitating the strategy of MicroStrategy (MSTR) CEO Michael Saylor, which involves converting corporate assets into a Bitcoin stockpile generator.
It is impossible to disregard Wall Street’s fixation on the MSTR, which has increased by more than 600% this year. Hedge funds are relishing the opportunity, employing arbitrage strategies that capitalise on Bitcoin’s notorious volatility.
Despite the excitement, Riot and MARA are not experiencing the same level of success as MicroStrategy. Riot and MARA shares have underperformed since the software company initiated its Bitcoin acquisition binge in 2020. Both are substantially below their 2021 peaks.
The April Bitcoin halving event was not beneficial. It significantly reduced the rewards that miners receive for adding new transactions to the blockchain, resulting in a substantial decrease in profits. Add to this the heightened competition, and miners are now facing an uphill battle to remain relevant.
However, Riot’s convertible notes have created some controversy. The conversion premium for the notes was 32.5%, which is lower than the 55% premium that MicroStrategy imposed on its November issuance.
The company is also under pressure from activist investor Starboard Value, which recently acquired a stake in Riot. Starboard is encouraging the miner to redirect a portion of its operations to hyperscalers, which are large-scale data center consumers, rather than exclusively concentrating on Bitcoin mining.
In the interim, analysts are evaluating the long-term feasibility of utilizing convertible debt to accumulate Bitcoin. Stephen Glagola of JonesTrading has expressed skepticism regarding this approach, stating, “We would prefer the company to increase BTC held per share organically through its mining operations.”
In the interim, BlackRock, a prominent investment firm, is cautiously advocating for Bitcoin as a component of diversified portfolios. The firm recommends that investors allocate up to 2% of their portfolio to Bitcoin, provided that they are willing to endure its extreme volatility.
MicroStrategy is currently considering inclusion in the Nasdaq 100 Index, which could result in substantial passive inflows into its stock. The index is trackable by exchange-traded funds valued at $451 billion, and its inclusion would necessitate substantial stock purchases.
Nevertheless, not all individuals are advocating for the concept. Critics contend that MicroStrategy’s dependence on Bitcoin renders it more of a financial entity than a technology company. Without its Bitcoin holdings, Michael Lebowitz of RIA Advisors declared it “essentially a defunct company.”
MicroStrategy has achieved a $98 billion market capitalisation, primarily as a result of its aggressive Bitcoin acquisitions, despite the criticisms. The company’s primary software operation is not performing well, despite the fact that it currently possesses over $40 billion in Bitcoin.
In the third quarter of this year, it disclosed a net loss of $340 million. However, despite the scepticism of its sustainability, its stock has continued to rise as a result of its Bitcoin-focused strategy.
MicroStrategy has designated itself as a “Bitcoin Treasury Company.” This identity could be advantageous for Nasdaq inclusion, as the index excludes financial companies. The industry classification benchmark’s classification of the company as a technology company may serve as its saving grace.
However, Bloomberg Intelligence analyst James Seyffart has cautioned that a reclassification could be imminent, which could compromise its eligibility.
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