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How MicroStrategy Used an Unusual Tactic to Gain 172% in 2020

By Anders Bylund - Jan 7, 2021 at 9:24AM

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Let's convert all our cash into cryptocurrency, all right? Wait: Let's borrow lots of money and buy even more bitcoin!

What happened

Shares of MicroStrategy ( MSTR -7.66% ) rose 172.4% in 2020, according to data from S&P Global Market Intelligence. The surge didn't exactly start in August, but that's when the business intelligence company lit the fuse.

So what

MicroStrategy stock has been following along with the surging price of bitcoin tokens since Aug. 11, which is when the company said it would convert its traditional cash reserves and bond investments into a digital wallet full of bitcoin tokens. Management didn't stop there: It also took on $650 million of new debt in December for the sole purpose of buying even more bitcoin.

The popular cryptocurrency is surging thanks to a combination of technical, political, and speculative reasons. Therefore, MicroStrategy's bitcoin investment looks like a genius move right now.

A hand is putting a large coin with the bitcoin logo into a golden piggy bank.

Image source: Getty Images.

Now what

MicroStrategy held a total of 70,470 bitcoin tokens as of Dec. 21. The company spent $1.13 billion on the tokens, which are worth $2.6 billion at today's bitcoin prices.

"The acquisition of additional bitcoins announced today reaffirms our belief that bitcoin, as the world's most widely adopted cryptocurrency, is a dependable store of value," CEO Mike Saylor stated in the press release announcing the bitcoin purchase that was based on the $650 million debt offering.

Saylor has been a vocal evangelist for this strategy, including a viral exchange of tweets with Tesla ( TSLA -6.42% ) CEO Elon Musk where Musk seemed curious about the idea of converting large cash reserves into bitcoin. As a much larger company, Tesla manages roughly $14.5 billion of cash equivalents. The exchange set cryptocurrency bulls' hearts aflutter and drove crypto prices even higher.

Time will tell whether Saylor's bitcoin-based cash reserves make sense or not. The tokens are notoriously volatile and could crash just as fast as they soared. Be careful out there and keep your cryptocurrency investments reasonably small until the market either burns down or matures a bit.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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MicroStrategy Incorporated Stock Quote
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