MicroStrategy (NASDAQ:MSTR) shocked the market yesterday by announcing it didn’t buy any Bitcoin (CRYPTO:BTC) during the prior week, the first time in 12 weeks it hasn’t made a purchase.
The company, which calls itself a bitcoin treasury company to emphasize its hoarding strategy of the cryptocurrency, has built up over the last four years 471,107 bitcoin. MicroStrategy spent $30.4 billion on the purchases for an average price of $64,511. Bitcoin is currently trading around $99,390.
MSTR stock, which was down sharply in pre-market trading yesterday as fears of a global trade war sent even Bitcoin’s price tumbling, suddenly reversed course and rallied to close the day 3.7% higher at $347.09 per share.
MicroStrategy (MSTR) surprised everyone by not making any Bitcoin (BTC) purchases last week, setting off a round of speculation as to why. It was a notable absence from the market because of the dip in value of the cryptocurrency from its recent all-time high. If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.
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A streak interrupted
MicroStrategy has been on a bitcoin-buying bender. Beginning Nov. 12 and continuing every week until just last week, it has been purchasing the crypto hand-over-fist without fail. It’s why MSTR’s failure to buy the bitcoin dip caught everyone by surprise.
|
Date |
Bitcoin Purchased | Average Price | Total Spent | Total Bitcoin Owned |
| January 27 | 10,107 | $105,596 | $1.1 billion | 471,107 |
| January 20 | 11,000 | $101,191 | $1.1 billion | 461,000 |
| January 13 | 2,530 | $95,972 | $243 million | 450,000 |
| January 6 | 1,070 | $94,004 | $101 million | 447,470 |
| December 30 | 2,138 | $97,837 | $209 million | 446,400 |
| December 23 | 5,262 | $106,662 | $561 million | 444,262 |
| December 16 | 15,350 | $100,386 | $1.5 billion | 439,000 |
| December 9 | 21,550 | $98,783 | $2.1 billion | 423,650 |
| December 2 | 15,400 | $95,976 | $1.5 billion | 402,100 |
| November 25 | 55,500 | $97,862 | $5.4 billion | 386,700 |
| November 18 | 51,780 | $88,627 | $4.6 billion | 331,200 |
| November 12 | 27,200 | $74,463 | $2.03 billion | 279,420 |
Source: MicroStrategy 8-K SEC filings.
Because CEO Michael Saylor didn’t say why no bitcoin were bought, there were three main theories why:
- Bearish sentiment as Bitcoin prices exhibited volatility
- The issuance of MicroStrategy’s perpetual preferred stock
- Earnings are scheduled for release on Wednesday, Feb. 5
Let’s take a look at each of them to see whether they have any merit.
The bear case
Due to MicroStrategy’s history of aggressive bitcoin accumulation, the fact that no purchases were and the company didn’t sell any stock under its at-the-market (ATM) program, could indicate Saylor was holding tight to wait for a better BTC price. ATM programs are when companies sell shares to raise capital, which MSTR uses to fund its bitcoin purchases.
Considering Bitcoin’s price is down 9% since hitting an all-time high of more than $109,000 on Jan. 20, it is odd that the biggest buyer of bitcoin, which bought 1% of bitcoin supply in just three months and owns 2% of all the bitcoin that will ever be issued, isn’t buying more now.
The perpetual preferred stock issuance
MicroStrategy is poised to close its first perpetual preferred stock offering tomorrow. It recently priced the offering of 7.3 million shares of the 8% preferred shares at $80 per share for a net proceeds of $563.4 million. TD Cowen analyst Lance Vitanza believes MicroStrategy may have been prohibited from buying bitcoin while marketing the preferred stock .
MSTR earnings report
Similar to the preferred stock theory, other analysts suspect MicroStrategy may have been prevented from buying ahead of its fourth-quarter earnings report. Coindesk senior analyst James Van Straten believes the quiet period surrounding a company’s earnings release to prevent insider trading may have stopped Saylor from purchasing any bitcoin.
Considering the cryptocurrency dominates MicroStrategy’s balance sheet, the bitcoin treasury company could be prohibited from trading the crypto.
Licking his chops
It seems doubtful Saylor has become bearish about bitcoin. As he expects the crypto’s value to only be worth a lot more in the future, small dips in price wouldn’t deter him from buying. More likely are the other two theories, or both of them simultaneously as they are occurring at the same time. We will likely see Saylor resume his frenzied buying soon enough.
When earnings and the preferred stock issuance are behind him and he has access to a stockpile of cash to purchase more Bitcoin, Saylor will undoubtedly be ready to dive back into the market.
Key takeaway
Bitcoin has been known to suffer severe collapses in value. It’s why buying MSTR stock is not necessarily a prudent strategy for investors. Despite it being touted as a way to get exposure to Bitcoin, it would be just better to buy the crypto directly. MicroStrategy’s financials are not healthy, it is larded with debt, and has no real underlying business to support the company.
It always looks good until the crash comes and there is nothing to stop the freefall. The pause in bitcoin-buying is much ado about nothing, but avoiding MicroStrategy stock is still a sensible decision.
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