An analyst analyzed the strategy behind MicroStrategy's aggressive bitcoin acquisition, which is gaining attention due to the alpha cryptocurrency's rising price.
Anthony Pompliano, founder and CEO of Professional Capital Management, understood the mathematical reason behind the company's investment move, but also warned that any investment is exposed to potential risks.
MicroStrategy Acquisition of bitcoin
Pompliano said MicroStrategy is taking a bold step to buy more <a target="_blank" href="https://www.coingecko.com/en/coins/bitcoin” target=”_blank” rel=”noopener nofollow”>bitcoin and increase its cryptocurrency reserve by using convertible debt to finance the acquisition of the cryptocurrency.
The investment firm offers its shares at a price higher than the current price per share to generate funds for its bitcoin acquisition.
Pompliano explained that MicroStrategy is selling future shares at a 55% premium to help the company buy more bitcoin, saying that it is a financially attractive move and that “this strategy makes sense from a financial perspective.”
Image: crypto Economy
The analyst said that it is a beneficial strategy for <a target="_blank" href="https://moneycheck.com/microstrategys-mstr-massive-bitcoin-accumulation-plan-raises-questions-about-market-stability/” target=”_blank” rel=”noopener nofollow”>Microstrategy because it allows the investment firm to raise significant capital that the firm is now using to purchase many major cryptocurrencies, saying this approach makes sense mathematically.
The bitcoin Investment Plan
In October of this year, MicroStrategy announced that it would conduct a <a target="_blank" href="https://www.ccn.com/news/business/microstrategy-bitcoin-3-year-in-4-months/” target=”_blank” rel=”noopener nofollow”>bitcoin buying spree raising $42 billion in new capital over the next three years to fund its goal of buying more btc.
Some analysts consider this bitcoin investment strategy as a bold move that is being watched by the investment firm.
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bitcoin market cap currently at $1.92 trillion. Chart: TradingView.com
According to the company executive, the goal of MicroStrategy's capital raising approach is to raise $21 billion in fresh capital from equity offerings and generate another $21 billion from fixed income securities between 2025. and 2027.
As of September 2024, MicroStrategy is already the largest holder of bitcoin among publicly traded companies worldwide. Buying more cryptocurrencies would further boost its position in first place among public companies.
Image: Theya Blog
Associated risks
Pompliano understood the appeal of the bitcoin proposal and said the move could be lucrative for the investment firm.
However, the analyst noted that investors should not overlook the risks associated with such investments and said that anyone who wants to take MicroStrategy's approach should understand the risks before diving into it.
“Now, the counterbalance to that is that I see a lot of people who say that nothing can go wrong. “I'm not in that field,” he said.
Pompliano explained that the investment firm's strategy is not foolproof and that some assumed that nothing could derail the investment plan.
“I couldn't sit here and tell you what can go wrong, but what I can tell you is that an alarm goes off in my head when I start seeing everyone saying that nothing can go wrong,” he said.
He noted that there are volatility risks when people invest in bitcoin, adding that the uncertain regulatory environment could amplify the risks associated with aggressively purchasing btc.
Featured image from Canva, TradingView chart
