MicroStrategy, a business intelligence firm known for its significant investment in Bitcoin, has announced plans to redeem all $1.05 billion of its 0% convertible senior notes due in 2027. Investors holding these notes have until February 20, 2025, to convert them into shares at $142.38 each. If they choose not to convert, MicroStrategy will pay back the full principal amount on February 24.
This decision comes as the company continues its aggressive Bitcoin buying strategy, now holding 461,000 BTC worth around $48.65 billion. MicroStrategy recently raised $3 billion through a zero-interest convertible bond issuance, further reinforcing its high-risk, high-reward approach to using Bitcoin as a corporate treasury asset. However, MicroStrategy may face a potential $2.9 billion federal tax bill on its unrealized Bitcoin gains under the Inflation Reduction Act.
While this proposal is not yet law, it has investors on edge. The company is also preparing for a $42 billion capital raise, with shareholders approving a 30x increase in authorized Class A shares.
Bitcoin tax implications for MicroStrategy
Despite the risks, large investors like Allianz Global Investors and State Street are buying MicroStrategy’s zero-coupon convertible bonds, seeing them as a way to bet on Bitcoin with less exposure to its volatility. Hedge funds are also using these bonds in convertible arbitrage plays. Critics warn that MicroStrategy’s aggressive strategy resembles past speculative bubbles.
With Bitcoin soaring and the company doubling down, the question remains: how long can this strategy last before the risks catch up? MicroStrategy estimates that its GAAP retained earnings could increase by up to $12.8 billion, while deferred tax liabilities may rise by up to $4 billion. The company is seeking an exemption from the Internal Revenue Service, arguing that there should be no distinction in accounting for stocks versus cryptocurrencies.
If the exemption is not granted, MicroStrategy may need to sell some of its Bitcoin to cover the tax bill, despite CEO Michael Saylor’s pledge not to do so in the near future. Analysts remain optimistic about MicroStrategy’s stock, giving it a Strong Buy consensus rating with an implied upside potential of 42.7% over the past year.