MicroStrategy continues its Bitcoin buying spree for the seventh consecutive week

• MicroStrategy bought 5,262 Bitcoin using proceeds from a $561 million stock sale.
• The company now owns 444,262 bitcoins, worth $27.7 billion, purchased at an average price of $62,257.
• MicroStrategy’s Bitcoin buying strategy involves leverage, which poses a significant risk if the cryptocurrency declines significantly.

Accurate strategy The Bitcoin company continued its bitcoin buying spree for the seventh straight week, announcing that it had purchased an additional 5,262 bitcoins.

The company sold about $561 million worth of stock in its public offering, then used the proceeds to add to its stock. Bitcoin Stack, according to a filing with the Securities and Exchange Commission on Monday.

Last week’s purchase came at an average price of around $106,613, just below Bitcoin’s record high of around $108,500. Since then, the cryptocurrency has fallen 14% to $92,893.

MicroStrategy now owns 444,262 bitcoins, acquired for $27.7 billion at an average price of $62,257. It is the largest holder of Bitcoin.

Despite Bitcoin’s impressive stock, MicroStrategy CEO Michael Saylor is playing a risky game, using leverage to buy as much of the cryptocurrency as possible.

“Their strategy is to issue convertible bonds and use the proceeds to buy bitcoin. This is literally the definition of leveraged trading — borrowing money to buy a financial asset,” Steve Sosnick, chief strategist at Interactive Brokers, told Business Insider last week.

MicroStrategy said so in October It will issue about $42 billion in equity and debt To buy that much Bitcoin over the next few years. The company has since purchased nearly 200,000 bitcoins and increased its average cost basis from $39,266 in October to about $62,257 today.

“This works great when the asset price moves in your favor, which happened amazingly with Bitcoin, but it has a bad way of collapsing if it moves in the opposite direction,” Sosnick said.

While MicroStrategy has a massive unrealized gain of about $41 billion tied to its Bitcoin bet, a significant decline in the cryptocurrency could put the company at risk, especially considering that its core software business is not consistently profitable and that it has raised more than $7 billion from… Convertible debts.

Sosnick highlighted that MicroStrategy benefits from a “self-verifying feedback loop” where it buys more bitcoin, which helps push the price higher, and then sells more debt and equity to buy more bitcoin, which subsequently pushes the price higher.

“This kind of thing never lasts forever, and it often ends badly — the question is, ‘When?’” The short-term answer seems to be, “Not yet,” Sosnick said.

But Anthony Scaramucci, founder of hedge fund firm SkyBridge Capital, doesn’t think Saylor’s bet on Bitcoin has to end badly even if the cryptocurrency suffers a bear market decline.

Instead, Scaramucci said bitcoin would need to experience a “systemic collapse” for MicroStrategy’s leveraged bitcoin bet to collapse.

“People think that if Bitcoin collapses, it will collapse, and as a result, the leverage in the system will disintegrate and there will be a collapse,” Scaramucci told Bloomberg last week. “But if you really study its balance sheet, it has long-term debt, and it has long-term revolving debt. You’re bound to have a systemic collapse in Bitcoin, and it will last for six or six years.” Seven years to get it out.”

According to Sosnick, the stock will remain higher as long as the hype and momentum for Bitcoin and MicroStrategy continues.

However, even small Bitcoin corrections can have a big impact on MicroStrategy shares.

Bitcoin’s 9% sell-off in late November coincided with a roughly 40% decline in MicroStrategy shares from peak to trough. Volatility has certainly eased over the past week. Amid Bitcoin’s current 14% correction, MicroStrategy stock has been less volatile, down about 17%.

For his part, MicroStrategy’s Saylor continues to promote Bitcoin. He told CNBC last week that buying Bitcoin was like buying a piece of Manhattan a few hundred years ago.

“We’ll keep buying the top forever. Every day is a good day to buy Bitcoin. I would have bought Manhattan 100 years ago, 200 years ago, every year for the last 300 years. You’re paying a little more than I paid.” “Manhattan was bought by you, but an investment in the economic capital of the free world is always a good investment,” Saylor said. Long-term target price of $13 million For Bitcoin.

In the end, Saylor’s risky strategy paid off. She has a billionaire fortune It rose this year Driven by his stake in MicroStrategy stock, which is up 442% year-to-date.