Business intelligence firm MicroStrategy has significantly increased its Bitcoin (BTC) purchases this month in response to the bullish sentiment following President-elect Donald Trump’s victory on November 5. The company’s recent acquisitions have pushed its total Bitcoin holdings to approximately $38 billion.

Convertible Notes Fuel Massive Bitcoin Purchase

On November 25, co-founder Michael Saylor announced via social media that MicroStrategy had acquired 55,500 BTC between November 18 and November 24 for $5.4 billion. 

This purchase was funded by proceeds from a $3 billion convertible note issuance and sales of common shares, as detailed in a filing with the US Securities and Exchange Commission (SEC).

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Since beginning its Bitcoin acquisition strategy in 2020, Saylor has shifted from using corporate cash to a more complex funding model that involves selling convertible debt and shares. 

The latest convertible note was issued at a zero percent interest rate, reflecting lenders’ confidence that MicroStrategy’s stock will appreciate beyond the conversion price in the future. 

Jeffrey Park, a portfolio manager at Bitwise Asset Management, noted that Saylor has effectively leveraged financial arbitrage within the corporate treasury structure, allowing MicroStrategy to borrow funds at virtually no cost.

Saylor also revealed that MicroStrategy’s treasury operations have yielded a substantial 59.3% in Bitcoin returns year-to-date, translating to a net gain of approximately 112,125 BTC for shareholders, or about 341 BTC per day. 

At a projected price of $100,000 per BTC, Saylor stated that this could mean an impressive $11.2 billion for the year, equating to roughly $34.1 million daily.

Analyst Warns Of Risks In Leverage Strategy

Since its foray into Bitcoin, MicroStrategy has acquired a total of 386,700 tokens, with an average purchase price significantly lower than its current market value. 

The latest acquisitions occurred while Bitcoin prices were nearing all-time highs, with the company purchasing the new tokens at approximately $97,862 each, slightly above their current trading price.

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However, this leveraged strategy has raised concerns among some analysts, particularly after MicroStrategy’s shares (MSTR) fell by 16% last Thursday. 

Critics warn that if Bitcoin’s price declines sharply, the company’s stock could suffer similarly, recalling the downturn in 2022 when the cryptocurrency market experienced significant losses.

TD Cowen analyst Lance Vitanza remarked on the risks associated with leverage, stating, “When you apply leverage to anything, you amplify the returns both in the up direction and in the down direction.” He emphasized that MicroStrategy is a pioneer in applying this leverage strategy specifically to Bitcoin.

At the time of writing, the market’s leading crypto is trading at $95,350, registering a price decrease of 1.7% in the 24-hour time frame. 

Featured image from DALL-E, chart from TradingView.com 

The higher-than-anticipated US core Consumer Price Index (CPI) reading was followed by a decline in Bitcoin (BTC) price as it tumbled almost 1.5% to $56,168 at press time.

US Headline CPI Matches Forecast, Core CPI Exceeds It

US headline CPI, the metric typically used to assess the inflation rate in the country, came in according to expectations at 0.2% month-over-month (MoM), and 2.5% year-over-year (YoY) for August 2024. However, core CPI (MoM) printed 0.3%, slightly higher than the 0.2% forecasted by economists. 

For the uninitiated, the difference between the headline CPI and core CPI is the constituents of the basket of items they assess. While the headline CPI measures all item categories, including housing, transportation, services, medical care, food, and energy, core CPI excludes food and energy prices to give a more stable view of underlying inflation trends.

By removing the price of volatile items from its calculation, core CPI is often considered a more accurate indicator of long-term inflation.

Following the unexpected core CPI print, BTC witnessed a quick decline in price as it fell from around $57,000 to $56,168 at the time of writing. The wider crypto market displayed similar trends as Ethereum (ETH), Binance Coin (BNB), Solana (SOL), and Ripple (XRP), which are down by 2.1%, 1.3%, 4.6%, and 2.4%, respectively.

With the CPI data for August 2024 released, it seems all but certain that the US Federal Reserve (Fed) will begin its rate-cut cycle with a 25 basis points (bps) cut in September. In a note, Capital Economics’ Paul Ashworth said:

On balance, we still think the Fed will begin its rate cutting cycle with a more modest 25 bps cut. The 3.2% annual core CPI was mostly due to a 5.2% increase in shelter prices, while the three-month annualized core CPI rebounded only to 2.1% from a weak 1.6%.

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Indeed, following the CPI data release, the probability of the Fed slashing rates by 25 bps next week has jumped to 83%, per data from CME FedWatch. Assuming the Fed reduces rates by 25 bps, it should instill some confidence in crypto and stock markets, fearing a 50 bps cut could signal the Fed not being fully confident in its ability to tackle inflation.

What Lies Ahead For Bitcoin?

As BTC remains loosely range-bound between $52,000 to $70,000 on the daily chart, analysts are speculating on the future trajectory the leading digital asset’s price could take.

Some analysts opine that BTC’s current price action is reminiscent of a similar price consolidation in 2023. If the same scenario plays out in 2024, we could see a new Bitcoin all-time-high (ATH) price.

It will also be interesting to see the impact of the US Presidential Elections scheduled to happen in November 2024. Interestingly enough, some election-agnostic analysts have stated that no matter who wins the election later this year, BTC is slated to win in the long term.

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At the time of writing, Bitcoin trades at $56,168 while the total cryptocurrency market cap sits at $1.94 trillion, down 2.3% in the past 24 hours.

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