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Seeking Alpha 2023-03-30 06:27:33

MicroStrategy: Buying The Bitcoin Dip Was A Smart Move

Summary MicroStrategy paid off its $205 million loan with now bankrupt Silvergate Back at a 20% discount to eliminate all margin call fears. The company also acquired an additional 6,455 BTC in Q1 2023 to bring its total holdings to 138,955. MicroStrategy is positioning itself for a massive bullish move leading up to the next crypto bull run even though the company diluted shareholders in the process. MicroStrategy ( MSTR ) shares have been on an absolute tear so far in 2023 ever since I previous wrote about MSTR stock on January 6th, 2023 when MSTR traded at $160. MSTR stock is up 75% YTD and the entire narrative surrounding Bitcoin (BTC-USD) has changed drastically since my previous MSTR article. Data by YCharts The 2023 Banking Crises Explains the Case for Bitcoin The 2023 banking crisis explains why so many people worldwide are turning to Bitcoin as a safe haven when banks collapse and play risky games with their customer's deposits. Silvergate, Silicon Valley Bank, Signature Bank, and Credit Suisse are the biggest banks to collapse in 2023 but I think there will be several more bank failures in the next several months. US banks have over $600 billion in unrealized losses and that number should continue climbing as long as the Fed refuses to lower interest rates. MicroStrategy's Q4 2022 Results and Recent Bitcoin Purchases Let's be honest: most of us are holding MicroStrategy stock for its Bitcoin holdings and aren't too worried about how the underlying company is performing in the short term. MSTR shares were literally left for dead over nearly 2 decades until Michael Saylor became a Bitcoin maximalist and held BTC on MicroStrategy's balance sheet in 2020. MicroStrategy did pretty well in Q4 2022 as Phong Le began transitioning well into his new role as CEO of the company. Total revenue hit $132.6 million in Q4 2022 while net income reached $193.7 million for the quarter. Impairment charge on the company's Bitcoin holdings made up $197.6 million of the quarterly losses so MicroStrategy's core business made a small net profit of $3.9 million. Since my last MSTR article, MicroStrategy has bought the dip and acquired more Bitcoin at very attractive long term prices. In Q4 2022, MicroStrategy purchased 3,204 Bitcoin at an average price of $17,616 per coin. So far in Q1 2023, MicroStrategy purchased 6,455 Bitcoin at an average purchase price of $23,238. Both of these purchases are far below the company's total Bitcoin acquisition price of $29,817, which helped lower MicroStrategy's total Bitcoin cost basis. Each MSTR share holds around 0.12 BTC respectively, which makes MicroStrategy a solid alternative to buying Bitcoin outright or Grayscale Bitcoin Trust ( GBTC ). Why MicroStrategy Repaid Its Silvergate Loan For those of you wondering about the $205 million Silvergate loan, MicroStrategy paid off the entire loan at a 20% discount to move on from the bankrupt crypto bank. Silvergate is undergoing bankruptcy proceedings and could use any form of cash at this moment to help settle with its depositors. MicroStrategy saved $44 million by paying the loan early, which was due to mature in 2025. The only downside is that MicroStrategy offered 1.3 million new shares to repay the Silvergate loan and acquire more Bitcoin. As far as I know, the MicroStrategy stock sale was diluted by 10% to 10.5 million as of Q1 2023. It's not an ideal situation but the company made a smart move by paying off its Silvergate loan and buying the recent Bitcoin dip. Bitcoin is a deflationary asset that continues gaining in value as the US dollar loses purchasing power. A lot of people are aware of Bitcoin's potential due to the recent banking crisis and I think Bitcoiners are pretty excited as we approach the 2024 halving around 13 months from now. Risk Factors Bitcoin has performed well year to date but nothing is guaranteed in such a tough economic climate. The biggest risk would be Bitcoiners losing trust in Bitcoin and moving to another cryptocurrency or asset class. MicroStrategy doesn't have any major debt commitments until 2025 so the company looks pretty safe right now financially. What's Next for MicroStrategy? I wouldn't worry about the recent dilution now because MicroStrategy killed two birds with 1 stone by eliminating its Silvergate loan and acquiring more Bitcoin at a lower than average cost basis price. The global banking sector is facing major turmoil and that's a good sign for Bitcoin in the long term. I still believe the crypto bull market run will began in April 2023 as more bank failures and bailouts put fear in the entire global economy. For now, I'm holding my MicroStrategy shares and waiting patiently for the next Bitcoin halving to consider taking some profits off the table.

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