MicroStrategy continues its bitcoin buying spree for the 7th straight week as the crypto dips below $100,000

Michael Saylor, chairman of MicroStrategy, has seen his risky strategy pay off. 

MicroStrategy continued its bitcoin buying spree for the seventh consecutive week, announcing that it purchased an additional 5,262 bitcoins.

The company sold about $561 million worth of shares in its at-the-market equity offering and then used the proceeds to add to its bitcoin pile, according to a filing made with the Securities and Exchange Commission on Monday.

Last week’s purchase came at an average price of about $106,613, just below bitcoin’s record high of about $108,500. Since then, the cryptocurrency has declined 14%, to $92,893.

MicroStrategy now owns 444,262 bitcoins, acquired for $27.7 billion at an average price of $62,257. It’s the largest corporate holder of bitcoin.

Despite its impressive bitcoin stash, MicroStrategy Chairman Michael Saylor is playing a risky game, taking on leverage to buy as much of the cryptocurrency as possible.

“Their strategy is to issue convertible bonds and use the proceeds to buy bitcoin. That is literally the definition of a leveraged trade — borrowing money to buy a financial asset,” Steve Sosnick, chief strategist at Interactive Brokers, told B-17 last week.

MicroStrategy said in October that it would issue about $42 billion of stock and debt to buy that much in bitcoin over the next few years. The company has since purchased nearly 200,000 bitcoins and increased its average cost basis from $39,266 in October to about $62,257 today.

“That works fabulously when the price of the asset moves in your favor, which it has done spectacularly with bitcoin, but has a nasty way of unraveling if it moves in the opposite direction,” Sosnick said.

While MicroStrategy is sitting on an enormous unrealized gain of about $41 billion tied to its bitcoin bet, a significant decline in the cryptocurrency could put the company at risk, especially considering that its underlying software business is not consistently profitable and that it has raised more than $7 billion in convertible debt.

Sosnick highlighted that MicroStrategy benefits from a “self-fulfilling feedback loop” as it buys up more bitcoin, helping push the price higher, and then sells more debt and equity to buy more bitcoin, which subsequently pushes the price higher.

“These types of things never go on forever and often end poorly — the question is ‘when?’ The short-term answer seems to be ‘not yet,'” Sosnick said.

But Anthony Scaramucci, founder of hedge fund company SkyBridge Capital, doesn’t think Saylor’s bitcoin bet has to end badly even if the cryptocurrency suffers a bear market decline.

Instead, Scaramucci said bitcoin would need to experience a “systemic collapse” for MicroStrategy’s leveraged bitcoin bet to collapse.

“People think if bitcoin crashes, he is going to implode, and as a result of it, leverage is going to unwind in the system and there’s going to be a collapse,” Scaramucci told Bloomberg last week. “But if you really study his balance sheet, he has long, long-term debt, and he has rolling long-term debt. You’d have to have a systemic collapse in bitcoin, and you’d have it to last six or seven years to flash him out.”

According to Sosnick, the stock will stay elevated as long as the hype and momentum continue for bitcoin and MicroStrategy.

Even small bitcoin corrections can have a big impact on MicroStrategy stock, however.

A 9% sell-off in bitcoin in late November coincided with a near 40% decline in MicroStrategy stock peak-to-trough. Granted, the volatility has subsided over the past week. Amid bitcoin’s current 14% correction, MicroStrategy stock has been less volatile, falling about 17%.

For his part, MicroStrategy’s Saylor is keep up the evangelism for bitcoin. He told CNBC last week that buying bitcoin was like buying a piece of Manhattan a few hundred years ago.

“We’ll just keep buying the top forever. Every day is a good day to buy bitcoin. I would have bought Manhattan 100 years ago, 200 years ago, every year for the past 300 years. You pay a little bit more than the person that bought Manhattan before you, but it’s always a good investment to invest in the economic capital of the free world,” Saylor said, before mentioning a $13 million long-term price target for bitcoin.

Ultimately, Saylor’s risky strategy has paid off. The billionaire’s wealth has soared this year, driven by his stake in MicroStrategy stock, which is up 442% year-to-date.