Bitcoin Rally Triggers MicroStrategy's Bond Dilemma, Skyrockets Stock Value

MicroStrategy Inc MSTR is facing a challenging situation as Bitcoin’s surge boosts both its shares and convertible bonds, making refinancing these bonds 280% more expensive. 

The $650 million convertible bonds, due in 2025, are now trading at about 3.8 times their par value, significantly above the conversion price of $397.99, despite offering a mere 0.75% coupon. 

MicroStrategy’s stock soared by approximately 390% since issuing the debt in late 2020, pushing the shares to close at $1,512.99 each Monday, Bloomberg reports.

Also Read: MicroStrategy’s Bitcoin Surge: How a Tech Company Outpaces eBay and Delta in Market Cap

This impressive stock performance positions the convertible bonds deeply in the money, raising a critical decision for MicroStrategy, which is often seen as a proxy for Bitcoin investments: whether to repurchase the bonds at the steep price of roughly $2.5 billion before maturity or to convert them into as many as 1.63 million new shares.

Given the rising borrowing costs, the dilemma intensifies as converting bonds to shares dilutes the stock value. 

Nonetheless, companies, including MicroStrategy, face heightened refinancing costs, making the issuance of new stock or a convertible bond with a lower coupon potentially more attractive despite dilution risks.

Analysts projected an upside in MicroStrategy, citing the upcoming Bitcoin halving, which could elevate Bitcoin’s price to $150,000 by 2025, along with growing institutional investment in spot Bitcoin ETFs. 

Analysts also flagged the company’s strategy of expanding its Bitcoin holdings through capital market activities and its enterprise software business’s cash surplus, projecting an increase in Bitcoin holdings to 298,246 by the end of 2025.

MicroStrategy stock surged 361% in the last 12 months. Investors can gain exposure to the stock via First Trust SkyBridge Crypto Industry And Digital Economy ETF CRPT and Advisor Managed Portfolios Miller Value Partners Appreciation ETF MVPA.

Price Action: MSTR shares traded higher by 3.98% at $1,498.51 on the last check Wednesday.

Also Read: MicroStrategy Unveils Auto AI Bot to Transform Business Intelligence with Customizable, User-Friendly Analytics

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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