Bitcoin and Convertible Bonds

The beginning of spring is upon us, nature is awakening, and the tulip season is starting. This metaphorically applies to the revival of cryptocurrencies as well: with the US Securities and Exchange Commission's approval of Spot Exchange-Traded Products on Bitcoin in January of this year, the cryptocurrency has finally become mainstream and has since been flooded with cash flows.

The resulting high demand for Bitcoin has definitively ended the so-called crypto winter. Following a sharp catch-up race since the beginning of the year, the price reached new all-time highs almost daily in March.

As asset managers in the convertible bond sector, we are not only confronted with long-term mega-trends such as renewable energies, electrification, or artificial intelligence but have also been analyzing companies with a direct connection to cryptocurrencies for over three years. The current developments are also increasing the share of this segment in the convertible bond universe.

Within two weeks, three convertible bonds were issued by companies in the crypto sector: MicroStrategy Inc raised USD 800m on March 6th, followed by Coinbase Global Inc with USD 1.1b on March 12th. Both were able to raise significantly more volume than originally planned, as they were literally overrun by investor demand.

The third issuance was again from MicroStrategy Inc, which raised capital through a convertible bond again after just under a week, at least USD 500m (with the option to increase). The previously issued bond rose within a week from 100% to over 141%; the company wants to take advantage of the momentum around Bitcoin and therefore promptly issues another one.

The rapid development of this convertible bond was due to the fact that the raised capital was directly used for the purchase of Bitcoin. This was already the case for the two outstanding convertible bonds from MicroStrategy Inc and also applies to the subsequent new issue.

Purchasers of this convertible bond are thus indirectly betting on nothing less than the further rise of Bitcoin - and with leverage at that.

This leverage effect can be illustrated by the development of the MicroStrategy stock compared to Bitcoin from the beginning of the year until March 14th:


On March 14th, there was a first breather, with Bitcoin correcting about 8% from the highs, and the shares of MicroStrategy Inc and Coinbase Global Inc followed with -5% and -7% respectively. This also had direct impacts on the respective convertible bonds: thus, the convertible bond of Coinbase Global Inc issued yesterday no longer trades just under 4 points higher as in the grey market, but already 2.5 points below the issue price.

The following issuers with connections to cryptocurrencies or Bitcoin are currently in the convertible bond universe:

  • MicroStrategy Inc (currently 4 convertible bonds outstanding)
  • Coinbase Global Inc (2 CBs)
  • WisdomTree Inc (2 CBs)
  • Marathon Digital Holdings Inc (1 CB)
  • Block Inc (3 CBs)

Positioning of Holinger Asset Management

Convertible bonds with exposure to Bitcoin or cryptocurrencies are not categorically excluded. As with any position we incorporate into the portfolio, however, we must be completely convinced after fundamental analysis of the business case, the operational quality, the fundamentals of a company, and the regulatory environment. We value bottom-up analysis, intact investment cases, and prefer long-term investing over short-term speculation.

This has not yet been the case for the listed issuers for various reasons. Regardless of the fact that some of these convertible bonds are or have been in the common convertible bond indices, we currently have no exposure to cryptocurrencies in our funds.

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