MicroStrategy and Hedge Funds are the New Majority Holders of Bitcoin
Thaddius Gamueda
Staff Writer
Founded by Michael Saylor, MicroStrategy began as a business intelligence company, but has evolved to be known as the largest corporate treasury of Bitcoin in the world and has been renamed to Strategy. Hedge funds, as buy-side institutions, where high net worth individuals’ assets are invested through advanced trading mechanisms, including the extensive use of leverage and derivatives. As hedge fund managers are seeking to find new areas of the market to create profit for their investors, cryptocurrencies have become a new focus. Cryptocurrencies are known for their volatility and have a negative stigma around them for the normal investor, so why have MicroStrategy and many hedge funds on Wall Street been switching their focus towards the world of decentralized finance?
Basics of Bitcoin
Bitcoin’s decentralized form is derived from blockchain technology. First created in 2008, blockchain technology uses high level mathematics to securely record transactions across a network of computers. A block is a single transaction of Bitcoin. Blockchain operates through a chain of blocks that must be connected and accepted by all blocks, which allows for the creation of a secure and tamper proof chain. Because of blockchain, Bitcoin is one of, if not, the most secure currencies on the planet. Many of the reasons for the switch to Bitcoin for hedge funds are because of the volatility Bitcoin has. Bitcoin is not a very liquid asset, and this leads to large trades heavily affecting the price. Another factor that leads to volatility includes the speculative trading nature of Bitcoin. Many governments have become interested in regulating cryptocurrencies, which creates an uncertain future for Bitcoin. Many trades of Bitcoin happen when investors believe there will be a price change in the future because of the information they have, rather than the intrinsic value of Bitcoin now.
Strategy’s Revolutionary Plan to Generate Profit
Bitcoin’s very volatile nature and high price leads to many investors looking to other assets, but Strategy sees Bitcoin as a crucial investment. Much of its beginning was based on mobile intelligence and data analysis technology for other companies. As technology has advanced, Strategy has embraced AI and blockchain technology to become the largest corporate holder of Bitcoin on the planet. In 2020, Saylor made the bold move of switching to Bitcoin for their treasuries because of growing fears of inflation in fiat currencies. There is a fixed amount of Bitcoin at 21 million, and Saylor argued that its decentralized nature made it much more valuable compared to cash. The long-term goal of Strategy is to become a Bitcoin treasury that promotes innovative securities backed by Bitcoin and prioritize the long-term growth of their common stock.
Saylor has gone on record here and stated that he believes Bitcoin’s price will exponentially grow to around $13 million per Bitcoin with a bullish outlook of $49 million by 2045. Strategy uses the sales of shares and convertible bonds to finance its purchases of Bitcoin. In 2024 alone, Strategy raised $750 million to buy more Bitcoin. As the company comes to possess more Bitcoin, their stock price goes up, so if Bitcoin is doing well, then so is Strategy. Their use of convertible bonds is much more intricate. On November 20th, 2024, Strategy announced the issuance of $2.6 billion in notes that will mature on December 1st, 2029. These notes are going to be sold only to qualified institutional buyers at a 0% interest rate. This means that the issuer does not pay the credit investors any interest and the base amount will only be paid back at a maturity date. For example, if an investor gives Strategy $1 million dollars, the investor will not get these funds back until 2029, unless there were different terms within the deal. The reason why such convertible bonds are attractive for investors and hedge funds is due to the nature of convertible bonds. Investors specifically buy the convertible bonds with hopes to convert the bonds into shares of stock, as the market price of the Strategy increases. This provides the investor with relative downside protection, since the bonds are higher than equities in the priority chain in the event of liquidation, yet, it gives the investors the opportunity to convert the bonds in stock, if the stock of Strategy rises.
How Hedge Funds are Profiting Off Strategy
As the hype around Bitcoin has been growing over the years, many investors have come together to create cryptocurrency hedge funds. These hedge funds specialize in cryptocurrency management and the use of crypto derivatives. Although there are many specialized cryptocurrency hedge funds, according to cointelegraph, nearly half of all hedge funds today (47%) are incorporating digital assets like cryptocurrencies. The new asset of digitized assets allows for many investors to diversify their investments. Because many cryptocurrencies are very volatile, many managers are bringing their traditional finance strategies to minimize the risk for their investors and harness the volatility to create substantial gains. Strategy’s plan to move to Bitcoin allows for hedge funds to short their stock while buying their 0% bonds for the long term. Essentially, many hedge funds are betting against MSTR for short term gain because of the volatility of Bitcoin by borrowing stock from brokers in a falling market. They do this while also betting on Bitcoin’s price to grow, which also leads to their bonds to make them a profit. This strategy is a win-win scenario for hedge funds.
Should Investors Buy MSTR or Crypto Hedge Funds?
As the U.S. market is transitioning to a new positive crypto president, Bitcoin has seen a jump in price since November, skyrocketing to over $100,000. According to analysts here, MSTR ($326.52) as of 2/13/2025, is currently a strong buy for the eleven. Although many investors cannot invest in hedge funds, there is a growing amount of exchange traded funds that retail investors can purchase to cash in on the cryptocurrency craze. Some of these include IBLC, IBIT, ETHA, and YETH for investors that want to invest in Bitcoin or Ethereum. With all these choices, investors need to take a step back and look at their risk tolerance. With the high returns comes high risk. Are they truly comfortable with the volatility that comes with these investments? Many cryptocurrencies fluctuate and can drop drastically without warning at times. MSTR reported earnings earlier this month, but for many investors, the plans for Bitcoin are what truly matters. Bitcoin’s uncertainty is very daunting for many, but if you are an investor looking to diversify their portfolios, MSTR may be the company of the future for you.
Contact Thaddius at Thaddius.Gamueda@shu.edu