Michael Saylor‘s company, Strategy, recently made a big move by raising $2 billion and buying a lot of Bitcoin. Let’s break it down in simple terms and explain what this means, including something called “arbitrage.”
What Did Strategy Do?
Strategy raised $2 billion by selling something called convertible notes. Convertible notes are like loans. People give Strategy money now, and later, they can either get their money back in cash or turn their loan into shares of Strategy’s stock, which means owning a piece of the company. These notes have 0% interest, so Strategy doesn’t have to pay extra for borrowing this money. They need to pay it back by 2030 unless the notes are converted into shares or other conditions are met.
Source | Strategy.com
Strategy used almost all of this $2 billion to buy 20,356 Bitcoins for about 1.99 billion USDC at a price of 97,514 USDC. After this purchase, Strategy now owns 499,096 Bitcoins. Strategy now owns more than 2.3% of all Bitcoin.
Source | Strategy.com
Why Did They Do This?
Strategy wants to buy more Bitcoin because they believe its value will go up in the future.
This $2 billion is part of a bigger plan called the “21/21 Plan.”
- The goal is to raise $42 billion over three years to buy even more Bitcoin.
- They’ve already raised $20 billion so far, mostly through selling these convertible notes and other loans.
The convertible notes have some special rules:
- Each $1,000 note can turn into 2.3072 shares of Strategy’s stock at $433.43 per share.
- But that’s 35% more than the current stock price, so it’s expensive for note holders to convert unless the stock price goes up a lot.
- Strategy can pay back the notes early if certain conditions are met, like if their stock price rises significantly.
- If something big happens to the company (called a fundamental change), note holders can ask for their money back.
What Is Arbitrage in This Case?
Arbitrage usually means buying and selling in different markets to make a profit from price differences.
Here, it’s a bit different but related:
- Strategy borrowed $2 billion at 0% interest (free borrowing).
- They used this “free” money to buy Bitcoin, which they think will increase in value.
- If Bitcoin’s price goes up, they make a profit. Since they didn’t pay interest on the borrowed money, it’s like getting a head start on their investment.
- This is kind of like arbitrage because they’re using cheap (or free) money to invest in something they expect to grow, making their gains bigger than if they had to pay interest.
Is This Risky?
Yes, it’s a big bet. If Bitcoin’s price goes up, Strategy wins. They can sell some Bitcoin to pay back the notes or let note holders convert to shares. If Bitcoin’s price goes down, they might have to sell Bitcoin at a loss to repay the notes or find another way to get the money. Strategy’s stock price has also dropped 30% since November, and some Wall Street bankers think this strategy is risky.
Final Thoughts
Strategy’s Bitcoin strategy is impressive, and their free-money plan could pay off huge if Bitcoin keeps rising. It’s an exciting move that shows confidence in crypto’s future. At Millionero, we write these articles with facts and a sprinkle of opinion, not financial advice.
Follow us at blog.millionero.com for more insights, and always DYOR (do your own research). When you’re ready, come trade spot and perpetual futures on Millionero. We’re rooting for smart plays like this to inspire the crypto world!