MicroStrategy to fund next Bitcoin purchase by selling $400 million in corporate bonds

Business intelligence firm MicroStrategy announced that it is borrowing $400 million to buy more Bitcoin. The company intends to offer senior secured notes to raise funds to purchase additional BTC.

MicroStrategy takes on impairment of over $280 million

MicroStrategy stated that it intends to buy an extra $400 million in Bitcoin to add to the 92,079 BTC currently held in its treasury. The cloud software company announced that these cryptocurrencies would be held in a new subsidiary called MacroStrategy.

At the current price of around $33,755, this would enable the company to purchase another 11,850 Bitcoin. The Nasdaq-listed firm is yet again raising money to fund the purchase by selling bonds.

MicroStrategy’s previous bond sales involved selling senior convertible notes. In this current sale, the company is issuing senior secured notes that will mature in 2028. 

By selling bonds, people can buy the debt from the business with the promise of receiving back their principal and interest. Institutions can purchase debt in MicroStrategy, and the business intelligence firm can then scoop up more Bitcoin as it believes that the leading cryptocurrency will increase in value.

While Michael Saylor, the CEO of MicroStrategy, has been leading the institutional wave of purchasing Bitcoin, it has drawn the attention of many crypto critics. 

According to Bloomberg, the private placement is $23 million higher than the company’s entire operating cash flow since 2016. Due to the recent volatility in Bitcoin price, the firm is taking a $284.5 million impairment loss during the second quarter of this year.  The company’s total impairments are up to $500 million.

Marc Lichtenfeld, the chief income strategist at the Oxford Club, commented:

“The $400 million in debt isn’t being used to fund an acquisition or growth. It’s being used to speculate on a volatile asset. Does MicroStrategy even have a business anymore, or is it simply a proxy for Bitcoin – with borrowed money?”

Although some of the firm’s impairment loss is due to arcane accounting rules, MicroStrategy’s bet on Bitcoin looks drastically different at current prices compared to the cryptocurrency’s all-time high near $64,000.