Bitcoin has been relatively quiet since the collapse of the FTX crypto exchange last year. While FTX founder Bankman-Fried is facing decades in prison, the digital currency has quietly and secretly recovered significantly. Even if it is still some way off its record high of around USD 69,000 from November 2021, the world's largest and best-known crypto asset has already risen by more than 150% this year and passed the USD 40,000 mark again a few days ago for the first time in a year and a half. This in turn pleases the software manufacturer MicroStrategy. The US group has been investing heavily in the digital asset since its initial investment of USD 250 million in 2020.
In November 2023 alone, MicroStrategy bought 16,130 bitcoins at an average price of USD 36,785. The costs, including fees, amounted to USD 593 million. The total number of bitcoins held by the US company now stands at 174,530 at an average price of USD 30,252. At a current price of around USD 42,000, this equates to a profit of just under 39%. However, the business intelligence company has by no means reached the end of its holdings. Together with the brokerage firms Cowen and Company, Canaccord Genuity and BTIG, up to USD 750 million in new shares are to be issued in the near future. The proceeds from this capital increase will in turn be used primarily for further Bitcoin purchases. During the recent quarterly results presentation, CEO Phong Le reiterated that MicroStrategy will continue its Bitcoin purchases to capitalize on the long-term benefits of the cryptocurrency.
Speaking of the quarter, the company also made progress at an operational level from July to September. Sales from the software business increased by around 3% to USD 129.5 million, exceeding the average forecast of USD 125.8 million. The continued growth in the cloud and high license sales in particular contributed to the good performance. Although the net loss of the Virginia-based company increased from USD 27 million to USD 143.4 million, this was mainly due to depreciation and amortization. Investors paid no attention to this loss, focusing instead mainly on the Bitcoin investment, as the share price performance shows. This year alone, the S&P 500 share has recorded a remarkable increase of more than 260%, reaching a new all-time high of USD 577 at the beginning of December.
Despite the rally, the current market capitalization of USD 7 bn is around 4% below the total value of the Bitcoin investment. This means that the Group's operating division has virtually no value of its own. MicroStrategy is at the forefront of the business intelligence sector. According to the Group, it was the first provider to launch AI software that uses Microsoft Azure OpenAI in the third quarter. "We believe MicroStrategy is well positioned to benefit from both the Bitcoin tailwind and the growth of our BI business," says CEO Phong Le confidently.
The recent increase in confidence in the crypto asset can be attributed, among other things, to the prospect of the first Bitcoin-based ETF being approved in the US in the near future. According to experts, the US Securities and Exchange Commission could give the green light in early 2024. However, MicroStrategy co-founder Michael Saylor pointed out the benefits of investing in MicroStrategy shares instead of a Bitcoin ETF on a conference call. "There are fees for investing in a spot ETF," Saylor said, continuing, "The ability to get bitcoin exposure without being charged a fee is another plus for us." Even though the analyst consensus also uniformly advises buying the stock, the upside seems to be gradually thinning out. The 12-month price forecast envisages a median target of USD 557.00, which is even lower than the current level.
The new Softcallable Barrier Reverse Convertibles offer an attractive return with a reduced risk compared to a direct investment. The CHF variant offers an attractive interest rate of 13.00% p.a. with a maximum term of 15 months, while the USD-denominated product even has a quarterly coupon payment of 17.00% p.a.. In addition, both products have a European barrier at 51%. As a result, the MicroStrategy share can decline below the barrier during the term without immediately reducing the potential return. Only if the barrier is breached could discounts occur. The closing price will then determine whether the investment is profitable or not. Otherwise, the repayment is based on the performance of the MicroStrategy share.
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