28 Mar 2023

What happens when Michael Saylor buys bitcoin?

Spoiler: Prices go up - then down.
MicroStrategy bitcoin purchases
MicroStrategy BTC purchase announcements tend to be followed by short-term negative price action. On Monday, BTC quickly fell 2.2% after MicroStrategy announced a purchase of 6,455 BTC and a repayment of its Silvergate loan in full. From January 1 to March 23, MicroStrategy issued and sold $339.4m of its class A common stock. The Silvergate prepayment was fully funded using proceeds from the sale of Shares. This was MicroStrategy’s largest BTC purchase since November 29, 2021. MicroStrategy entered a Sales Agreement with Cowen and BTIG in September, enabling them to issue and sell shares with an aggregate offering price of up to $500m. MicroStrategy issued and sold $46.4m worth of Class A shares in Q4 2022 to acquire 2,500 BTC. They issued and sold an additional $339.4m worth of shares in Q1, 2023. Per the Sales Agreement, MicroStrategy may issue and sell a further $114.2m worth of shares to acquire BTC. Thus, while MicroStrategy managed to prepay its Silvergate loan at a 25% discount, the market is pricing in that a known large buyer has less short-term gunpowder left to generate upside momentum. Below, we illustrate the BTC performance during periods when MicroStrategy acquires BTC. On average, BTC has delivered a 6.2% positive return during MicroStrategy VWAP purchasing periods. An expected observation as these VWAP orders represent a significant constant buyer in the market.
MicroStrategy bitcoin purchases graph1
The market dislikes major MicroStrategy BTC purchase announcements
Monday’s adverse market reaction following MicroStrategy purchase announcements is typical, as BTC’s daily return is averaging at -2.2% on MicroStrategy announcement days. The average 7-day return is more balanced at -0.2%. As elaborated above, this market reaction may be caused by market participants absorbing the information that a known large buyer has finished, meaning less buy-side liquidity to support further upside.
MicroStrategy bitcoin purchases graph2
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