Currently there are two large institutions that are actively acquiring thousands of Bitcoin (BTC) and that has been in the news regarding crypto assets as we speak. One of these large institutions is MicroStrategy (formerly Strategy) and the other is American Bitcoin (ABTC), a company backed by the Trump family. Over the last few months, MicroStrategy has acquired significant amounts of Bitcoin, acquiring more than 10,645 BTC last week (nearly $1 billion) now holding two other large companies, up to more than 671,000 BTC total.
While ABTC was similarly acquiring BTC in local and global markets, they surpassed 5000 BTC (currently valued at US$28 million). The purpose of this blog post is to provide insight into the background of both companies and describe how both of their behaviours will influence other institutional users of Bitcoin.
MicroStrategy's Relentless Bitcoin Strategy
If you have been in the cryptocurrency space for more than 12 months, then surely you have heard of MicroStrategy. Even if you are not familiar with this news, it is important to look back and learn from what MicroStrategy did because they are really reshaping the corporate finance landscape through their bold and unconventional approach to corporate treasury management. MicroStrategy's former CEO, Michael Saylor, took an enormous risk with his company in 2020 by essentially reinventing how they approached the company's treasury management. He made the groundbreaking decision that MicroStrategy would buy Bitcoin instead of retaining traditional fiat currencies that lose their purchasing power over time. Saylor and MicroStrategy made that move and purchased a large amount of Bitcoin.
At that time, the topic was very controversial. There were many people who were not supporters of Saylor's decision; those who didn't understand the purpose and goals of crypto viewed it as a high-stakes gamble for the company's corporate balance sheet. However, Saylor and MicroStrategy did not view purchasing Bitcoin and holding it on their corporate balance sheet as a gamble; they saw it as a strategy for preserving value in a world where fiat currencies are being created out of thin air.
Today, MicroStrategy is the biggest company in the world that owns Bitcoin. Their most recent purchase of 10,645 BTC for $980 million is only one in a long line of aggressive transactions. They have more than 671,000 BTC on their balance sheet, which is worth tens of billions of dollars.
The trouble is, they're not slowing down. Strategy maintains buying even if the price of Bitcoin has gone up a lot. They aren't waiting for prices to drop. They aren't trying to guess when the market will go up or down. They're merely steadily building up their holdings, seeing Bitcoin as a long-term store of value instead of a risky trade.
How They're Funding These Purchases
If you're curious, "Where's all this cash coming from?"
MicroStrategy has devised numerous solutions for obtaining capital. From selling convertible debt to raising cash by way of stock issuance and leveraging their existing Bitcoin assets to acquire additional Bitcoins, MicroStrategy has developed various ways to raise capital. This approach assumes that investing in Bitcoin will produce better results than investing in other currencies or assets over time, and MicroStrategy certainly believes that this will be the case.
One of the most interesting aspects of MicroStrategy's approach is its use of convertible debt. With this type of financing, MicroStrategy can borrow money at very low interest rates, which then enables them to leverage that capital to invest in Bitcoin. The plan relies on the price of Bitcoin appreciating faster than MicroStrategy pays in interest. Should the price of Bitcoin dip, merchants might encounter difficulties with future payments.
Saylor believes he will be investing in Bitcoin for the long term. He does not concern himself about market fluctuations; he understands the fundamentals of Bitcoin, and he indicates that in the long run, the best way to invest is by holding Bitcoin rather than dollars.
MicroStrategy has taken an interesting turn due to this way of thinking. It has become a public company that looks like a public company that has a lot of assets in Bitcoin, but MicroStrategy operates primarily as a Leveraged Bitcoin Fund along with a software development company on the side. While some investors may be enthusiastic about this approach, others see it as being unreasonable. Regardless, MicroStrategy cannot be ignored.
The Rebranding to "Strategy"
The name MicroStrategy is starting to be associated with the term Strategy, but it's not an official rebranding at this time. It's safe to say that very few people are discussing what MicroStrategy was originally (they sold enterprise analytics software). There's a palpably different focus on their purchase of Bitcoin holdings and the stock itself (MSTR) is a proxy for the value of Bitcoin. When Bitcoin rises in value, so does MSTR and sometimes it tends to rise more due to leverage.
Changing the name to Strategy will demonstrate that the change has occurred. MicroStrategy is more than just an analytics software company; it is now following a prescribed financial strategy of acquiring Bitcoin.
Whether or not there is a legal change of name has already been made - the market thinks of MicroStrategy as Strategy, the Bitcoin company.
Enter American Bitcoin and the Trump Connection
Now let's talk about the other participant in the news: American Bitcoin.
This one is newer and, to be honest, more politically heated. Members of the Trump family own American Bitcoin, and they have been buying more Bitcoin. They just went above the 5,000 BTC mark.
5,000 BTC may not sound like a lot compared to MicroStrategy's 671,000 BTC. But the situation is important. American Bitcoin is a lot newer, yet 5,000 BTC is still worth hundreds of millions of dollars. It's a big deal.
The fact that the Trump family is involved makes things even more interesting. Trump is one of the most well-known names in the world, whether you love him or loathe him. His family's support of Bitcoin sends a message, especially to conservative investors who may have been doubtful about crypto.
In addition, there is a bigger political angle here. In the past few years, Trump has said good things about Bitcoin, which is a big change from how he used to feel about it. If American Bitcoin keeps expanding and becomes a big player, it might help make Bitcoin more normal for people who have been wary of digital assets in the past.
Why Institutional Accumulation Matters
Why should you give a damn about this? The reason is that the institutional accumulation will affect the rules of the game. The buying by an individual is a big deal, but when institutions (especially publicly-traded corporations) buy Bitcoin, they are able to purchase it with large amounts of money that individuals cannot. Furthermore, they have the ability to show other potential buyers (those who may be "on the fence") that they are confident in buying Bitcoin.
MicroStrategy, for example, has attracted the attention of other companies, such as Tesla and Block (formerly Square), who have recently begun adding Bitcoin to their financial statements. Each time a major corporation states that it intends to buy Bitcoin, it lends legitimacy to the asset class.
When American Bitcoin receives backing from high profile groups, it could potentially invite other, more politically motivated institutional investors into the world of Bitcoin – i.e. investors who align with the policies of Donald Trump or are simply drawn to that brand. In either case, they will ultimately reduce the supply of Bitcoin, since there's only 21 million Bitcoins and many have been purchased by long-term holders who aren't willing to part with their investments. When companies like American Bitcoin continually buy up more Bitcoin, they're effectively removing more coins from circulation creating upward pressure on any remaining coins due to increased demand for the coin.
The Risks They're Taking
It's no secret that what these companies do poses serious risks.
If Bitcoin crashes hard and stays down, MicroStrategy will have big-time trouble with all their debt. Your debt doesn't disappear just because your assets have lost everything. Even with much lower leverage than in the past, American Bitcoin is still gambling heavily on a volatile asset. Gary has purchased over 5,000 BTC, a lot of money to put into one investment.
Finally, they both face regulatory risks from multiple levels of government around the world, including the US. It isn't clear as of now what the new rules will be regarding Bitcoin but if the new rules are unfavourable, it could be a significant hit to those holdings.
Lastly, the market risk associated with Bitcoin remains high. Despite all the gains Bitcoin has experienced primarily in the last decade, it could still easily lose 50% of its value or more. Not everyone will be able to withstand or recover from such a loss, nor do they have the resources to do so.
What This Signals About Bitcoin's Future
The continual increase of the number of corporates and funds backing Bitcoin tells us two things.
- Corporates are more confident than ever before when it comes to their investment in Bitcoin. Even with uncertainty in regulation, continuing volatility, and distrust from the traditional finance sector; corporates continue to double down on Bitcoin.
- More people are beginning to see Bitcoin as an investment that they would make to hold on their Treasury Balance Sheets, which means they are starting to view Bitcoin as more than just a place to park their cash, bonds and gold. This is a major shift.
- There is a real supply squeeze happening on Bitcoin. There will be fewer Bitcoins to trade as they are being moved into corporate treasuries and long-term holds. The economic principle that the price of a good will increase as its supply decreases and its demand stays the same or increases, holds true here.
Final Thoughts
MicroStrategy's acquisition of 10,645 BTC last week wasn't a surprise; it's just the latest in a long line of Bitcoin purchases they've made. They are the clear leader among corporate Bitcoin holdings, with more than 671,000 BTC.
American Bitcoin's rise above 5,000 BTC is not as big in absolute terms, but it is still important. The Trump family's involvement makes the project more visible and could bring in a fresh wave of institutional interest.
Both of these actions are part of a larger trend: institutions are starting to take Bitcoin seriously. It's not only a risky investment for crypto fans and retail traders anymore. It's turning into a strategic reserve, a treasury asset, and a way to protect against inflation.
Whether you think Bitcoin will go up or down, one thing is clear: institutional buying is changing the market. If corporations like Strategy and American Bitcoin keep buying, the supply dynamics might get quite fascinating in the coming few years.
Stay tuned for more information. The race for Bitcoin among businesses is just getting started.
