MicroStrategy (NASDAQ:MSTR) bought more Bitcoin (BTC-USD), sending prices of the cryptocurrency over $72,000 and its own stock higher.
The company used convertible debt to buy 12,000 Bitcoin. At the same time, short interest in MSTR stock has increased to over 20%, according to Fintel.
The short-term impact is predictable. Both MicroStrategy and Bitcoin are up. MSTR stock gained 9.6% on March 8 and another 9.4% over the weekend. It opened this morning at $1,546 per share, a market capitalization of over $26 billion. Bitcoin was trading at over $72,000 early today.
A Short Squeeze for the Ages
Bitcoin has a market cap of $1.4 trillion, but most coins never trade. MicroStrategy has 15 million shares outstanding.
Crypto bulls now say that buying in support of MicroStrategy could easily push Bitcoin prices to $100,000. The cryptocurrency was already gaining on the approval of spot exchange-traded funds (ETFs) in Bitcoin, which were also rising in price on March 11.
The new ETFs have attracted billions of dollars in capital, wrote fellow InvestorPlace contributor Joel Baglole in February. He said the “halving” of Bitcoin in April, when the reward for answering the Bitcoin puzzle is cut in half, is also increasing interest in cryptocurrency.
MicroStrategy CEO Michael Saylor is a Bitcoin advocate. The company’s enterprise analytics system has become irrelevant to the stock’s investment case. MicroStrategy had revenue of under $500 million last year.
The notes MicroStrategy used to buy its Bitcoin carry an interest rate of just 0.625%, but they’re convertible into stock. This makes them behave more like options than debt instruments.
The Bitcoin ETFs are also buying Bitcoin as the price rises. Blackrock’s (NYSE:BLK) iShares Bitcoin ETF (NASDAQ:IBIT) now holds nearly 200,000 Bitcoin, about as many as MicroStrategy.
MSTR Stock: What Happens Next?
Since Bitcoin is an artificial currency in deliberately short supply, the squeeze could go on for a while. The trouble starts when those doing the squeezing decide to cash out.
On the date of publication, Dana Blankenhorn did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
