MicroStrategy, led by CEO Michael Saylor, has created a business model that securitizes bitcoin through innovative financial tools. This approach has generated significant interest among investors and raised questions about its sustainability and impact on the price of bitcoin.
To understand MicroStrategy’s strategy, it’s essential to look at how it works. The company, which provides business intelligence solutions, began buying bitcoin in 2020 as a way to diversify its treasury. By adding bitcoin to its balance sheet, Saylor believed that the company could benefit from long-term appreciation and low carrying costs.
MicroStrategy’s strategy is based on several key assumptions: bitcoin will appreciate by an average of 25% per year over five years, and the company can borrow money at lower interest rates than bitcoin’s annualized appreciation. By leveraging these advantages, MicroStrategy “sells” volatility to options traders while using cheap debt to accumulate more bitcoin.
This approach has been praised for its potential upside, but also carries significant risks if bitcoin’s price does not appreciate as expected. The company’s focus on accumulating bitcoin is crucial, and Saylor continually communicates his long-term plan to investors.
The genius of MicroStrategy’s strategy lies in its ability to use inefficiencies in legacy capital markets to gain leverage over fiat currencies. By borrowing cheap capital to acquire a scarce asset like bitcoin, the company aims to create significant value for shareholders.
MicroStrategy is also playing a key role in accelerating bitcoin adoption by reducing supply and pushing the conversation about bitcoin’s properties as a store of value into the mainstream. Several companies are now exploring a similar approach, which could lead to bitcoin becoming a widely accepted asset class.
Source: https://www.forbes.com/sites/davidbirnbaum/2024/11/27/how-does-microstrategy-use-bitcoin-to-make-money