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MicroStrategy (MSTR) CEO exploring ways to leverage Bitcoin

16:21, 20 December 2021

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An external shot of the MicroStrategy offices
MicroStrategy’s CEO is exploring ways to earn yield off Bitcoin holdings – Photo: Shutterstock

Likening its Bitcoin holdings to owning unused New York City real estate, MicroStrategy CEO Michael Saylor hinted the company may mortgage or lend its Bitcoin holdings to generate yield as part of its corporate treasury operations strategy.

Noting that MicroStrategy has not taken any formal steps, Saylor said during a virtual investor presentation: “I think we are very enthusiastic about the opportunities to generate yield from our Bitcoin.”

MicroStrategy stock is trading at $550 per share in mid-morning trading, up 0.45% from the $548.31 opening share price. MicroStrategy stock trades over the Nasdaq exchange under the ticker MSTR.

Noting institutional investors want to see a company generate yield from its assets, MicroStrategy owns 122,478 Bitcoin total, of which 13,449 is already collateralised via senior secured and convertible debt at the holding company level. The remaining 109,029 owned by operating unit MacroStrategy – valued at up to $5bn – is currently not pledged as collateral and thus not generating yield.

MicroStrategy Bitcoin holdings breakdownPhoto: MicroStrategy investor presentation

Bitcoin as digital property

“Just like if you have $5bn in unused parking lots in New York City, one thing you could do is lease or rent the air rights to your neighbours,” Saylor said. Calling its Bitcoin holdings “digital property” Saylor added: “If you own property you can develop it, mortgage it or put a lien on it.”

Adding that MicroStrategy is two to three years ahead of other companies with regard to how it uses Bitcoin in its treasury operations, he said that “we think in the future there might be opportunities to put a mortgage on [Bitcoin holdings] and generate long-term debt, which we could leverage”.

Another strategy Saylor believes presents an opportunity would be a partnership with a company or even a financial institution looking to use its Bitcoin for other purposes.

MicroStrategy Bitcoin usage chartPhoto: MicroStrategy investor presentation
“We could lend our Bitcoin to a trustworthy counterparty in some kind of a partnership with a big tech company or a big bank” ~ MicroStrategy CEO Michael Saylor

Mortgage or lend Bitcoin

“We could lend our Bitcoin to a trustworthy counterparty in some kind of a partnership with a big tech company or a big bank that wants to do something with Bitcoin,” Saylor said. “You could think of that as putting a lien on it.”

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Currently, the Bitcoin held by the MacroStrategy subsidiary is not being deployed to generate revenue. MicroStrategy plans to continue using the capital markets to acquire Bitcoin in the open market, a strategy Saylor said made MicroStrategy “essentially a synthetic Bitcoin miner”.

Most recently, MicroStrategy reported acquiring an additional 1,434 Bitcoin in the open market between 29 November and 9 December for $82.4m, an average price of $57,477 per Bitcoin, the company reported in its most recent 8-K filed with the US Securities & Exchange Commission.

The purchase was funded by selling 119,828 shares of stock through a standing Open Market Sale Agreement with Jeffries, for an average $693.10 per share totalling $82.4m. MicroStrategy is the largest corporate Bitcoin holder.

MicroStrategy Bitcoin holdings historyPhoto: MicroStrategy investor presentation

Read more: MicroStrategy plans to sell $400m bonds to buy more bitcoin

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