Bitcoin miners are taking notes, literally, from MicroStrategy’s aggressive financial strategy. Riot Platforms and MARA Holdings are now following the playbook, issuing convertible notes to buy Bitcoin.
Clearly, these guys are no longer satisfied with just validating transactions and earning rewards. Instead, they’re mimicking MicroStrategy (MSTR) CEO Michael Saylor’s tactic of turning corporate resources into a Bitcoin stockpile machine.
Wall Street’s obsession with the skyrocketing MSTR—up over 600% this year—is impossible to ignore. Hedge funds are loving the opportunity, deploying arbitrage strategies that take advantage of Bitcoin’s infamous volatility.
Miners can’t keep up with MicroStrategy’s pace
Despite the hype, Riot and MARA aren’t seeing the same success as MicroStrategy. Since the software company started its Bitcoin-buying spree in 2020, Riot and MARA shares have underperformed. Both remain far below their 2021 highs.
The April Bitcoin halving event didn’t help. It slashed the rewards miners earn for adding new blocks to the blockchain, putting a major dent in profits. Throw in increased competition, and miners are now fighting an uphill battle to stay relevant.
Riot’s convertible notes have raised eyebrows though. The notes came with a 32.5% conversion premium, lower than MicroStrategy’s November issuance, which had a 55% premium.
Riot is also facing pressure from activist investor Starboard Value, which recently took a stake in the company. Starboard is pushing the miner to shift some of its operations toward hyperscalers—large-scale data center users—rather than focusing solely on Bitcoin mining.
Meanwhile, analysts are questioning the long-term viability of using convertible debt to stockpile Bitcoin. Stephen Glagola from JonesTrading has expressed doubts about this strategy, saying, “We would prefer the company to increase BTC held per share organically with its mining operations.”
Meanwhile, investment giant BlackRock is cautiously endorsing Bitcoin as part of diversified portfolios. The firm suggests investors allocate up to 2% to Bitcoin but only if they’re prepared to stomach its wild volatility.
MicroStrategy on its way to Nasdaq 100, critics weigh in
MicroStrategy is now eyeing a spot in the Nasdaq 100 Index, a move that could trigger massive passive inflows into its stock. Exchange-traded funds worth $451 billion track the index, and inclusion would mean huge stock purchases.
But not everyone is sold on the idea. Critics argue that MicroStrategy’s reliance on Bitcoin makes it more of a financial entity than a technology company. Michael Lebowitz from RIA Advisors went as far as calling it “essentially a dead company” without its Bitcoin holdings.
Despite the criticisms, MicroStrategy has amassed a $98 billion market cap, largely due to its aggressive Bitcoin acquisitions. The company now holds over $40 billion in Bitcoin, but its core software business isn’t doing so hot.
It reported a $340 million net loss in Q3 this year. Still, its Bitcoin-focused strategy has kept its stock soaring, even as skeptics question its sustainability.
MicroStrategy has branded itself as a “Bitcoin Treasury Company.” This identity could work in its favor for Nasdaq inclusion, as the index excludes financial companies. Its classification as a technology company by the Industry Classification Benchmark might be its saving grace.
But Bloomberg Intelligence analyst James Seyffart has warned that a reclassification could be on the horizon, jeopardizing its eligibility.
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