Michael Saylor, founder and executive chairman of MicroStrategy(NASDAQ: MSTR), is arguably one of the biggest Bitcoin(CRYPTO: BTC) bulls on the planet. Ever since his company started aggressively buying Bitcoin in August 2020, he has predicted that the price of Bitcoin has nowhere to go but up. He now thinks that Bitcoin could hit a price of $13 million by 2045.
At the end of October, he delivered more welcome news for Bitcoin investors: the launch of a spectacular $42 billion Bitcoin buying plan during the next three years. That’s roughly equivalent to 3% of all Bitcoin in circulation, and it could set off a huge Bitcoin rally for years to come.
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In a call with analysts, MicroStrategy said the next step in what it calls the “21/21 Plan,” is to raise $42 billion, then use it to buy more Bitcoin. Half of the funds, or $21 billion, would come from at-the-market offerings of new shares in the company. The other $21 billion would come from new fixed-income offerings, primarily in the form of convertible debt.
To put this plan into perspective, MicroStrategy already has 252,200 Bitcoins on its balance sheet, worth more than $21 billion at today’s prices. So the plan is to double the company’s current Bitcoin holdings. Already, MicroStrategy has the largest Bitcoin holdings of any company in the world. In fact, MicroStrategy currently holds more Bitcoin than either the U.S. or the Chinese governments.
Image source: Getty Images.
To call a $42 billion buying spree aggressive is an understatement. As Saylor sees it, though, we’re already in the midst of a decade-long Bitcoin “gold rush,” and he’s determined to transform his enterprise software company into something he’s now calling a “Bitcoin Treasury Company,” or BTC, as a way to capitalize on this.
Already, a handful of companies have shown a willingness to follow MicroStrategy. For example, Semler Scientific(NASDAQ: SMLR) is now ratcheting up its Bitcoin buying plans as it increasingly transforms from a medical device company into a Bitcoin Treasury Company. And MARA Holdings(NASDAQ: MARA), the world’s largest publicly traded Bitcoin mining company, has said that it’s about to add a lot more Bitcoin to its balance sheet.
Why are they doing this? The answer is simple: as long as the price of Bitcoin continues to rise, it makes sense from a purely financial and accounting perspective. In fact, MicroStrategy now uses a metric known as Bitcoin yield to guide its Bitcoin buying activity. Bitcoin yield is defined as the period-to-period percentage change of the ratio between the company’s Bitcoin holdings and its assumed diluted shares outstanding.
The markets certainly think MicroStrategy’s Bitcoin buying strategy makes sense. Consider that Bitcoin has almost doubled this year this year (as on Nov. 11), while MicroStrategy is up more than 360%. And as Saylor likes to point out, his company has outperformed every single company in the S&P 500 ever since he started buying Bitcoin in August 2020.
Of course, Saylor’s plan to buy as much Bitcoin as possible, as quickly as possible, only makes sense if the price of Bitcoin heads ever higher. If Bitcoin really is on the path to $1 million, he’s going to look like a genius for buying Bitcoin now, while it’s still less than $100,000.
But what if the price of Bitcoin doesn’t go parabolic? That might cause a serious deterioration in the value of MicroStrategy, which is risking everything to become a Bitcoin Treasury Company. The market value of MicroStrategy is now so closely tied to the price of Bitcoin that even a slight decline might prove disastrous.
Already, analysts have weighed in on MicroStrategy’s plan, poking holes in some of its key assumptions. For example, MicroStrategy plans to raise $21 billion in low-interest debt. But what if there is no investor demand for that debt and the company is forced to issue high-interest debt to attract buyers? That might just blow up the Bitcoin yield, not to mention the strain it might place on the company’s cash flow.
The good news, of course, is that Donald Trump’s election win appears to pave the way for a rally in Bitcoin in 2025. Trump has already promised to improve the regulatory environment for crypto and to put more government resources into supporting Bitcoin.
And, just like MicroStrategy, the U.S. government could go on a Bitcoin buying spree of its own next year. According to the latest vision for a strategic Bitcoin reserve, the U.S. could buy as many as 1 million Bitcoin in the near-term future. That would likely force other nations to follow suit to keep pace with the U.S.
Thus, while a Bitcoin price above $1 million within just a few years might seem unfathomable to most people, just consider what might happen if every sovereign nation goes on a Bitcoin buying spree. That might just result in the kind of Bitcoin gold rush that Saylor predicted.
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Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin and Semler Scientific. The Motley Fool has a disclosure policy.
