Michael Saylor, founder and executive chairman of MicroStrategy (NASDAQ:MSTR)is perhaps one of the largest Bitcoin (CRYPTO: BTC) bulls on the planet. Since his company started aggressively buying Bitcoin in August 2020, he has predicted that Bitcoin’s price has nowhere to go but up. He now thinks Bitcoin could reach a price of $13 million by 2045.
In late October, he delivered even more welcome news for Bitcoin investors: the launch of a spectacular Bitcoin purchasing plan worth $42 billion over the next three years. That’s roughly equivalent to 3% of all Bitcoin in circulation, and it could spark a massive Bitcoin rally in the coming years.
The plan to buy $42 billion worth of Bitcoin
In a call with analysts, MicroStrategy said the next step in what it calls the “21/21 Plan” is to raise $42 billion and then use it to buy more Bitcoin. Half of the money, or $21 billion, would come from offerings of new shares in the company on the market. The remaining $21 billion would come from new fixed-income offerings, mainly in the form of convertible bonds.
To put this plan into perspective, MicroStrategy already has 252,200 Bitcoins on its balance sheet, which at current prices is worth more than $21 billion. So the plan is to double the company’s current Bitcoin holdings. MicroStrategy already has the largest Bitcoin holdings of any company in the world. In fact, MicroStrategy currently owns more Bitcoin than the US or Chinese government.
Image source: Getty Images.
To call a $42 billion buying spree aggressive is an understatement. But the way Saylor sees it, 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 now calls a “Bitcoin Treasury Company,” or BTC. a way to take advantage of this.
Will other companies follow MicroStrategy’s lead?
A handful of companies have already shown a willingness to follow MicroStrategy. For example, Semler Scientific (NASDAQ:SMLR) is now ramping up its Bitcoin purchasing plans as it increasingly transforms from a medical device company into a Bitcoin Treasury Company. And MARA companies (NASDAQ: MARA)The world’s largest publicly traded Bitcoin mining company has said it is 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 purchasing activities. Bitcoin return is defined as the period-to-period percentage change in the ratio of the company’s Bitcoin holdings to its assumed outstanding diluted shares.
The markets certainly think MicroStrategy’s Bitcoin buying strategy makes sense. Consider that Bitcoin has nearly doubled this year (as of November 11), while MicroStrategy is up over 360%. And as Saylor likes to point out, his company has outperformed every other company in the world S&P500 since he started buying Bitcoin in August 2020.
Pushback to MicroStrategy’s Bitcoin Strategy
Saylor’s plan to buy as much Bitcoin as possible as quickly as possible obviously only makes sense if the price of Bitcoin keeps going higher. If Bitcoin is really on its way to $1 million, he will look like a genius if he buys Bitcoin now while the price is still less than $100,000.
But what if Bitcoin’s price doesn’t go parabolic? That could cause a serious deterioration in MicroStrategy’s value, putting everything on the line for it to become a Bitcoin Treasury Company. MicroStrategy’s market value is now so closely tied to the price of Bitcoin that even a small drop could be disastrous.
Analysts have already pored over MicroStrategy’s plan and poked holes in some of its key assumptions. MicroStrategy, for example, 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 could only inflate Bitcoin returns, not to mention the pressure it could put on the company’s cash flow.
Where will Bitcoin go in 2025?
The good news, of course, is that Donald Trump’s election victory appears to be paving the way for Bitcoin to rally in 2025. Trump has already promised to improve the regulatory environment for crypto and put more government resources into supporting Bitcoin.
And like MicroStrategy, the US government could start buying Bitcoin itself next year. According to the latest vision for a strategic Bitcoin reserve, the US could buy as much as 1 million Bitcoin in the short term. That would likely force other countries to follow suit to keep pace with the US
While a Bitcoin price of over $1 million in just a few years may seem unfathomable to most people, consider what could happen if every sovereign nation started buying Bitcoin. That could well result in the kind of Bitcoin gold rush Saylor predicted.
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Dominic Basulto has positions in Bitcoin. The Motley Fool holds positions in and recommends Bitcoin and Semler Scientific. The Motley Fool has a disclosure policy.
