On Monday, MicroStrategy Inc. announced its intention to invest the sum of $400 million in Bitcoin. The company is borrowing $400 million to purchase more of the world’s most famous cryptocurrency and is also writing down the value of its existing holdings.
In a filing by the Virginia-based enterprise software company on Monday, the company revealed that the senior secured notes will be made available to qualified institutional buyers. According to Bloomberg’s report, the private placement is $23 million higher than the company’s total operating cash flow since 2016. MicroStrategy revealed that it is taking a roughly $284.5 million (which is more than its cumulative earnings since 2011) charge during its next earnings report and this is as a result of the fluctuations in the price of the digital asset. MicroStrategy Services, one of the company’s subsidiaries, alongside other subsidiaries (that may either be formed or acquired after the closing of the offering), will fully and unconditionally guarantee the notes on a senior secured basis.
This development will be the first-ever junk bond sale used for financing purchases of the highly volatile cryptocurrency.
This is not the first time the enterprise software company is raising money to buy the premium cryptocurrency. In December of 2020, the company raised $400 million to buy Bitcoin and was done by notes that were convertible into the company’s shares.
The company had already taken about $265 million in charges prior to this announcement. This therefore brings the total amounts of impairment to over $500 million, according to data collated by Bloomberg and its filings. In its bid to hold more of the cryptocurrency, the company has already issued convertible bonds worth about $1 billion, and this action(s) has raised many eyebrows.
“The $400 million in debt isn’t being used to fund an acquisition or growth. It’s being used to speculate on a volatile asset. Does MicroStrategy even have a business anymore or is it simply a proxy for Bitcoin – with borrowed money”, Chief Income Strategist at the Oxford Club; Marc Lichtenfeld commented on the development.
Tesla is another company that has invested in the volatile cryptocurrency, and even though the company has stopped accepting Bitcoin as a means of payment for its electric vehicles, it still continues to hold the volatile asset. Michael Saylor, co-founder and CEO of MicroStrategy is part of the recently formed Bitcoin Mining Council and is known for his interest in Bitcoin. Bitcoin mining sustainability is a major concern for both the CEOs of Tesla and MicroStrategy, and they are working with North American miners (with the newly formed Bitcoin Mining Council) to discuss “energy usage transparency”.
As at the time of the development, MicroStrategy’s shares fell 3.1 percent to $469.72 in New York.