What happened
On 19 February 2021 MicroStrategy completed an offering of 1.05 billion dollars of convertible senior notes due 2027, with net proceeds of about 1.03 billion. The company states the use of proceeds directly: it "intends to use the net proceeds from the sale of the notes to acquire additional bitcoin."
The deal grew as it was marketed, from 600 million dollars announced on 16 February to 900 million at pricing, then to 1.05 billion when the purchasers' option was exercised in full.
The striking term is the coupon. The filing says it plainly: "The notes do not bear regular interest, and the principal amount of the notes does not accrete."
What it changes
A company borrowing a billion dollars for six years at no interest sounds like a gift. It is not, and the mechanism is worth following.
A convertible note is a loan that the holder can turn into shares instead of taking cash back. These convert at 0.6981 shares per 1,000 dollars of principal, an initial conversion price of about 1,432.46 dollars per share, which the company notes is "a premium of approximately 50%" over the 955.00 dollar closing price on 16 February 2021.
The lender is not being paid in interest, but in optionality. What a buyer receives for forgoing yield is the right to convert if the share price rises more than half again, plus the principal back if it does not. That is why zero percent clears the market: the embedded call option is the compensation.
For shareholders the effect is leverage. The company is converting borrowed money into a reserve asset, so bitcoin per share rises now, and the obligation is repaid later either in cash or by issuing shares that dilute the same holders. This is the second such deal: a 650 million dollar convertible at 0.750% due 2025 closed in December 2020, with proceeds also directed into bitcoin.
What it does not change
The notes are senior obligations that come due on fixed dates, 15 December 2025 and 15 February 2027. Whatever the asset does, the principal is owed. An operating software business now carries a repayment schedule that its treasury policy is separate from.
Nothing here is unique to bitcoin either. This is ordinary capital markets machinery, convertible debt and a stated use of proceeds, pointed at an unusual asset.
And a corporate holding is not self-custody by another route. Owning the shares is owning a claim on a company that owns coins and owes money against them.
Context
Companies have long issued convertibles to fund acquisitions or growth. Using them to accumulate a reserve asset is the novel part, and it makes the balance sheet the product rather than the business.
Two things are unresolved. The accounting rules require a fall in the asset to be recorded as an impairment while a rise goes unrecorded until sale, so the reported numbers will look worse than the position on the way down. And the structure has not been tested through a deep, sustained drawdown with maturities approaching. Neither question can be answered from a closing announcement.