Is MicroStrategy Becoming a De Facto Bitcoin ETF? Experts Disagree

Business intelligence firm MicroStrategy has bought over 71,000 Bitcoin (BTC) for a total of $1.145 billion over the last few months. The value of its crypto investment has surged to more than $3.5 billion amid Bitcoin’s ongoing price rally, but it looks like that’s still not enough for the firm.

As Decrypt reported yesterday, the company has plans to sell another $600 million worth of convertible senior notes to buy even more Bitcoin. Its Bitcoin holdings are worth around 40% of the firm's market cap, which has shot up accordingly with the value of its Bitcoin holdings.

But has the firm become some kind of pseudo Bitcoin ETF—in the absence of one in the US—enabling investors to get exposure to Bitcoin without owning it? Or does the company have some greater goal in mind?

Cardinal shift toward Bitcoin

Speaking to Decrypt, Meltem Demirors, chief strategy officer at digital asset investment firm CoinShares, suggested that MicroStrategy’s plan might be to buy as much Bitcoin as possible and plug the gaping Bitcoin ETF hole in this space.

“I think it indicates they don’t have a plan other than becoming a de facto Bitcoin ETF. So maybe bullish for Bitcoin, but I think bearish for MicroStrategy who are now effectively a holding [company with] Bitcoin they buy using cheap leverage,” Demirors told Decrypt.

“It works on the way up but I wonder if it’s really what we should be advocating for,” Demirors added, noting, “As a former corporate treasurer—all things in balance. Our research suggests 4% is an optimal Bitcoin allocation to start.”

ETFs are a type of security that consists of various baskets of assets, shares of which can be listed and traded on exchanges. In the case of a Bitcoin ETF, the underlying asset is the cryptocurrency. This way, crypto ETFs allow institutional investors to get exposure to digital assets without actually buying or holding them directly.

So far, several US companies—such as VanEck and Valkyrie Digital Assets—have filed applications to launch Bitcoin ETFs, but the Securities and Exchange Commission (SEC) has so far turned them all down. (Meanwhile, Canada has now approved its second.)

The price of MicroStrategy’s shares have skyrocketed alongside the company’s Bitcoin investments. In mid-November, the firm’s stock was trading at around $200 per share. By early February, it was up to $1,270—a 500% increase in roughly three months.

Since MicroStrategy's share price appears to be tied to the rising price of Bitcoin, it has enabled investors to buy MicroStrategy shares in order to get exposure to Bitcoin—without owning the actual asset itself. Alternatively, they could buy shares of the Grayscale Bitcoin Trust (GBTC) but then they might have to deal with its price premium and lock up periods.

More than just a Bitcoin ETF

Antonio Vazquez, head of communications at Hermez Network, acknowledged that MicroStrategy’s massive investments in Bitcoin may, indeed, be perceived as the company’s gradual shift towards becoming the equivalent of a Bitcoin ETF. But he argued that there might be a bigger goal.

“There are some in crypto who argue that MicroStrategy's plan is to keep offering Convertible Senior Notes, becoming the de facto Bitcoin ETF,” Vazquez told Decrypt, explaining, “While I don't disagree with that theory, my bet is that MicroStrategy's real target is to get the Bitcoin market capitalization to one trillion dollars.”

He added, “That could be the tipping point for crypto’s acceptance as a solid asset class, as well as the beginning of the biggest parabolic movement the space has ever seen.”

Others agreed that MicroStrategy might have a very different reason for buying Bitcoin—and that it has a greater purpose too.

“Given the market capitalization of Bitcoin, it is quite a reasonable assumption. Considering the stock market situation around MicroStrategy, its shares have grown a lot on the back of Bitcoin’s price growth,” Konstantin Anissimov, executive director of crypto exchange CEX.IO, told Decrypt.

He added, “So, there is an obvious connection between the two, but we do not think that [becoming a Bitcoin ETF] would be the company’s plan. We think they are more future-focused than that.”

This opinion was also echoed by Ben Gagnon, director of mining operations at Bitfarms, who argued that public corporations’ first and foremost priority is to do what's in the best interest of their shareholders in terms of capital deployment.

“MicroStrategy and others are buying Bitcoin because it is simply the best use of capital in a time when most industries are in contraction and central banks around the world are simultaneously inflating all currencies at record rates,” Gagnon told Decrypt.

“It isn't about converting their company into an ETF. It's about protecting the shareholders against inflation devaluing the company's assets,” he summarized.