MicroStrategy, a Virginia-based business intelligence software company that trades on the NASDAQ, announced on Tuesday it has acquired 21,454 Bitcoin in what describes as a “capital allocation strategy.”
The move is a novel one for a publicly traded firm. While many companies put surplus capital into bonds and other investments as part of their treasury management strategies, a bet of this size on Bitcoin is all but unheard of.
“[I]nvesting in the cryptocurrency would provide not only a reasonable hedge against inflation, but also the prospect of earning a higher return than other investments,” said the company in a statement.
MicroStrategy, which was founded in 1989, has a market cap of around $1.2 billion, and posted a profit of $34 million in 2019. Its clients reportedly include big retailers like Pepsi and Adidas, while IBM and Oracle are among its competitors.
MicroStrategy’s decision to plow $250 million into Bitcoin may amount to more than a capital allocation strategy. Barry Silbert, the founder of crypto conglomerate DCG, noted on Twitter that the move could serve to tie MicroStrategy’s valuation to Bitcoin.
If investors equate MicroStrategy’s valuation with Bitcoin’s performance, it would not be the only company in this position. The online retailer Overstock is also heavily invested in crypto, a strategy that may have buoyed its share price even as its core business slumps.
The strategy could pay off if Bitcoin prices, which have rallied in recent months, continue to rise. After slumping for most of 2019, the cryptocurrency has risen to around $12,000 in August.
Many crypto boosters believe the price increase is tied to the flood of money printed by central bankers in recent months as countries try to stave off the economic crisis triggered by the pandemic. Unlike national currencies, Bitcoin has a finite supply of 21 million, which makes it a hedge against inflation akin to gold in the view of Silbert and others.
MicroStrategy disclosed the Bitcoin purchase in an SEC filing this week. The filing or Tuesday’s press release does not disclose how or where Microstrategy obtained the Bitcoins.