MicroStrategy’s $42B Bitcoin Plan Faces Major Hurdles, CoinShares Warns

MicroStrategy’s recently announced “21/21 Plan” to invest $42 billion in Bitcoin over three years faces several significant hurdles, according to a new analysis from European digital asset investment firm CoinShares.

On October 30, MicroStrategy Inc. (Nasdaq: MSTR) released its Q3 2024 financial results, highlighting both its latest Bitcoin acquisition strategy and challenges within its software business.

The company, known for its substantial Bitcoin holdings, announced a three-year “21/21 Plan” to raise $42 billion—$21 billion in equity and $21 billion in fixed-income securities. This capital would be used to grow its Bitcoin treasury further, with the aim of increasing yield from its BTC holdings, according to CEO Phong Le.

During Q3, MicroStrategy raised $2.1 billion through equity and debt issuances, which it attributed to supporting this treasury strategy. The company’s Bitcoin holdings increased by 11% over the quarter, reaching approximately 252,220 bitcoins with a market value of $16.007 billion as of September 30.

MicroStrategy’s BTC yield—a metric the company uses to assess the performance of its Bitcoin strategy—reached 17.8% for the year-to-date, though it revised its longer-term yield target to between 6% and 10% annually from 2025 to 2027.

In their detailed examination, Alexandre Schmid, an Index Fund Manager at CoinShares, and Satish Patel, an Investment Analyst at CoinShares, note that MicroStrategy’s transformation from a modest business intelligence firm to the world’s largest corporate Bitcoin holder has been remarkable, with its market capitalization expanding 50-fold to surpass $50 billion in October 2024.

The investment strategy has proved lucrative so far, the CoinShares team points out, with MicroStrategy commanding a nearly 200% premium over its Bitcoin holdings, which have a market value of over $18.6 billion (as of November 5) against a cost basis of $9.9 billion.

According to the CoinShares analysis, MicroStrategy’s success has largely hinged on its ability to raise low-cost debt through convertible bonds, with the firm securing over $4.2 billion at an average interest rate of just 0.81%. The analysts highlight that Bitcoin’s volatility helped make these convertible bonds more attractive to investors.

However, the CoinShares report identifies several critical challenges facing MicroStrategy’s ambitious expansion plans. The authors claim that the strategy’s success depends heavily on continued favorable financing conditions and sustained demand for convertible notes, noting that recent coupon rates have been trending upward from their previous zero-coupon levels.

A particularly significant risk, according to the CoinShares team, lies in MicroStrategy’s inability to sell its Bitcoin holdings without potentially destroying its market premium. The analysts also point to substantial tax implications, with unrealized gains of $7.7 billion that could face future taxation.

The CoinShares report also highlights a growing misalignment between MicroStrategy’s core software business and its Bitcoin holdings, suggesting the company may need to find new ways to generate income from its Bitcoin reserves to service its debt obligations.

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