ARCA: Microstrategy opens bitcoin to fixed income investor base amid treasury management controversy

Independent of your views on Michael Saylor, his sordid past, or his controversial Treasury management strategy, there is one undeniable positive about Microstrategy’s recent aggressive debt-fueled bitcoin buying spree. By issuing another upsized $900 million of convertible bonds to buy bitcoin, he is opening access to bitcoin to perhaps the last remaining investor base that still does not have access — fixed income investors.

ARCA, a crypto investment management firm, highlighted previously how bitcoin fits so many different investment buckets, and that no other asset in the world besides US Treasuries can be claimed by so many different types of investors. Bitcoin is now owned in some way by macro funds, equity funds, insurance companies, corporate treasurers, individual investors, central banks and plenty of other types of investors and users.

Sometimes bitcoin itself is being bought, and other times some proxy is being bought (like Grayscale’s GBTC, or publicly traded stocks with high BTC balances or correlations). But if you have a strict fixed income investing mandate, to date, you have been unable to participate in bitcoin’s growth… that is, until Microstrategy began issuing converts to buy bitcoin.

Whether Microstrategy is intentionally trying to become a “bitcoin tracking stock” or a “backdoor ETF” is open to interpretation. And with a $9.4 billion equity market cap relative to just a $4.7 billion bitcoin position, clearly you’d be better off just owning bitcoin outright versus owning MSTR stock or converts as a proxy if your goal was just to own bitcoin.

But with Microstrategy’s low debt-to-cap ratio and high interest coverage, owning the MSTR convert as a “cheap call option” certainly has merit, especially if it’s the only game in town per your mandate. During the 2007 LBO craze, it was frowned upon to raise debt to pay equity dividends — but the demand was there, so companies and investment banks took advantage of it anyway. Similarly, Microstrategy is taking advantage of an insatiable demand for bitcoin, and Saylor is tapping into an audience that has previously been shut out.

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