[Business & Issues] MicroStrategy Soars Due to Coin 'Debt Investment'... Reasons Behind Increased Volatility

Stock Prices Sway Amid Coin Volatility
Cloud Computing Performance Continues to Deteriorate
Convertible Bond Issuance, Entire Funds 'All-In' on Coins

Michael Saylor, Chairman of MicroStrategy. Photo by Getty Images

The stock price of MicroStrategy, which raised funds by issuing convertible bonds to make large purchases of Bitcoin, is showing significant volatility linked to the cryptocurrency market. Although the company’s core cloud computing business has incurred losses, these are being offset by the rising value of its Bitcoin holdings. With Chairman Michael Saylor at the helm, MicroStrategy has announced it will continue its 'all-in' Bitcoin strategy, but experts warn that pouring corporate funds into the highly volatile cryptocurrency market is extremely risky.

MicroStrategy Stock Price Soars and Plummets... Volatility Intensifies with Coin Movements

On the 27th (local time), MicroStrategy’s stock price surged 9.94% from the previous day to $388.84. Since the U.S. presidential election on the 5th, MicroStrategy’s stock price has experienced sharp fluctuations. The stock, which was $227.80 on the 5th, soared 108% to $473.83 by the 20th of this month, only to fall 25.35% back to $353.69 by the 26th.

The main reason for such wild swings is that the stock is considered a Bitcoin-themed stock and moves in tandem with the cryptocurrency market. Since Chairman Saylor began purchasing Bitcoin in 2020, MicroStrategy has accumulated a total of 386,700 Bitcoins valued at $37 billion (approximately 52 trillion KRW), the largest holding among publicly traded companies.

Because this represents about 1.8% of the total global Bitcoin supply, MicroStrategy’s stock price is heavily influenced by Bitcoin price volatility. According to Coinbase, the largest cryptocurrency exchange in the U.S., Bitcoin’s price surged from $68,317.69 on the U.S. election day (the 5th) to $98,739.25 on the 22nd. It then dropped to $91,944.42 on the 26th before rebounding to $95,963.98 on the 27th, showing an unstable trend.

Core Business is Cloud Computing and Software... But Performance is Poor

Getty Images

MicroStrategy’s core cloud computing business is on a downward trajectory. The company’s Q3 revenue this year was $116.1 million, down 10.34% year-over-year, with an operating loss of $443 million. It has experienced negative growth for three consecutive quarters this year.

Founded in 1989, MicroStrategy originally developed 'Business Intelligence (BI)' software, a process that helps analyze corporate business data to aid decision-making. It now focuses on creating mobile BI software through cloud computing technology. The company primarily operates in the business-to-business (B2B) sector and is not widely recognized by the general public.

After the COVID-19 pandemic triggered an economic downturn in 2019, which severely impacted the BI industry, then-CEO Saylor announced an aggressive Bitcoin investment strategy and began purchasing. As the cryptocurrency market, including Bitcoin, entered a slump, MicroStrategy suffered a loss of $1 billion (approximately 1.4 trillion KRW) in 2022. In August of that year, Saylor stepped down as CEO but retained the chairman position, focusing solely on Bitcoin acquisitions.

Raising Funds via Convertible Bonds to Go All-In on Coin Investment... "Bitcoin Will Reach $500,000"

Reuters Yonhap News

Despite worsening performance, MicroStrategy continues to prioritize Bitcoin investment over its core business. On the 21st, it issued $3 billion worth of convertible bonds maturing in 2029 and combined with internal reserves, made additional Bitcoin purchases. On the 25th, MicroStrategy disclosed to the U.S. Securities and Exchange Commission (SEC) that it had purchased Bitcoin worth $5.4 billion at an average price of $97,862 per coin between November 18 and 24.

The all-in Bitcoin strategy is expected to continue. MicroStrategy plans to raise $42 billion over the next three years through stock sales and bond issuance to fund further Bitcoin acquisitions.

Chairman Saylor expressed optimism in an interview with CNBC on the 22nd, stating, "The Bitcoin valuation has increased by $5.4 billion in the past two weeks. We are making $500 million a day," and added, "Bitcoin will yield a 20% return over the next 21 years, and its price volatility will gradually stabilize."

However, experts warn that the strategy of committing an entire company’s funds to Bitcoin and other cryptocurrencies is risky. They caution against bearing the high volatility of the cryptocurrency market through debt. Mike Novogratz, CEO of Galaxy Digital, a cryptocurrency asset investment firm, warned, "Since Bitcoin has surged rapidly in a short period, a major correction could occur after breaking the $100,000 mark," and added, "MicroStrategy, which has become a cryptocurrency-related stock, is highly leveraged and could face even more severe stock price corrections."