Did MicroStrategy’s $400 Million Convertible Note Idea Backfire ?

Microstrategy, the business intelligence firm has been betting big on bitcoin ever since it made its first purchase of $250 million in August this year. Most recently the firm announced its plans of issuing $400 million worth of debt securities to buy more bitcoin. The software giant looks at bitcoin as a hedging asset which offers better returns than cash in their treasury. However, this over the top bullishness has led to their shares being downgraded from “neutral” to “sell”.

The downgrade by Citibank led to a fall in share prices for the business intelligence company and it closed down 14% yesterday despite almost record volumes. It seems the $400 million convertible note idea has not gone down well with many investors.

MicroStrategy closed down 14% yesterday on almost record volumes. Safe to say some investors are not excited by the convertible note idea! pic.twitter.com/eHIVapqE9k

— skew (@skewdotcom) December 9, 2020

One Twitter user rightly pointed that Microstrategy had already h bought $500 million worth of bitcoin from its treasury which was lauded by one and all, however, to double down almost the same amount in borrowing doesn’t seem to be a smart move. One Twitter users wrote,

To be fair, buying $500m worth of btc with reserves is a very smart and bold move, however, just after that, borrowing similar amount to double down is a very stupid, risky almost like an addiction move.

Did Citibank Downgrade Lead to Bitcoin Price Crash?

Today bitcoin price saw another flash crash of over $1500 after holding its position above $19,200 for the past couple of days. Many analysts were predicting a price correction before another burst post the $20,000 mark. The top cryptocurrency fell by over 7% today currently just above $18,000. While Citibank’s decision was purely because of Microstrategy’s $400 million debt security proposal, it seems investors still went short.

yeah for sure but I'd bet shareholders are reacting to Citi's reaction instead of directly reacting to Saylor haha

— Zack Voell (@zackvoell) December 9, 2020

Citibank themselves have published several reports on bitcoin primarily bullish for its institutional investors so there is nothing to prove that the bank’s decision was due to bitcoin rather than MicroStrategy’s excessive focus on bitcoin.