Former CEO of a major crypto derivatives exchange BitMEX, Arthur Hayes, spoke about the only time the American software developer MicroStrategy (MSTR) could be forced to sell its bitcoin (BTC), which is now worth billions of dollars.
In his recent blog post, Hayes Noted how MicroStrategy CEO Michael Saylor “had the nerve” in 2020 to issue $ 1.6 billion worth of bonds and use the proceeds to buy BTC.
Hayes went on to explain that the 0.75% convertible coupon bond is due in December 2025 and the zero coupon bond in February 2027, stating that:
“If MSTR does not have the cash to repay the principle, or cannot access the corporate bond market, then and only then would MSTR be forced to sell assets.”
The question of what return would it be unprofitable to refinance the bond is driven by the performance of BTC relative to the growth of the US money supply – which is dictated by the Federal Reserve.
Looking at historical yields for the past five years, the refinancing rate for a five-year bond should be above 5,808% or 1,162% per annum. “At this rate, a company is effectively shut out of the corporate bond market. However, this situation is “highly unlikely” for MicroStrategy as it has a viable cash-generating business.
“This is because many institutional bond investors lack common sense,” said Hayes. “They blindly follow a set of investment mandates.” So, they might hate BTC “in its essence”, but if MicroStrategy’s corporate paper shows an attractive return against their benchmark, these investors “will buy the issue up to their concentration limits.”
Since MicroStrategy is a major, listed and audited company, its issues must be held regardless of what its CEO does with the product, Hayes writes, describing it as “the reflective power of passive index investing,” and adding:
“It’s smart enough to use the laziness of the professional investor community to invest in a concept that aims to disintermediate them.”
According to Hayes, Saylor will not abandon investors, will continue to lead portfolios “through rough seas” and will continue “to gorge themselves on cheap corporate debt as long as institutional investors invest.”
As to whether Saylor is irresponsible or a genius, Hayes said the answer usually depends on the price of BTC, as the CEO has turned his company into “a pseudo-Bitcoin ETF” (exchange-traded fund).
MSTR Price Table:
As reported, most recently MicroStrategy offered $ 500 million in junk bonds to fund their additional BTC purchases and reportedly received around $ 1.6 billion in orders.
The company said it holds more than 92,000 BTC acquired for more than $ 2 billion. This stash is worth around $ 3.5 billion today.
At 10:51 am UTC, BTC is trading at $ 37,582 and is down over 1% in a day and 4% in a week. He also fell 34% in one month, reducing his annual earnings to 281%.
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