Benchmark: MicroStrategy may soon generate income by lending out its Bitcoin holdings

MicroStrategy completed a $1.01 billion convertible note offering this month and purchased 7,420 BTC, worth about $458.2 million, from September 13 to 19. Investment bank and research firm Benchmark said the latest move shows that MicroStrategy's balance sheet and financial position may become stronger as it issues convertible notes to raise funds for its increased Bitcoin holdings. Benchmark's Mark Palmer noted that MicroStrategy Executive Chairman Michael Saylor occasionally mentioned the idea of ​​lending some of MicroStrategy's Bitcoin to generate income, but he did not think it was feasible because there was a lack of counterparties with the financial strength and strong balance sheet to allow him to accept this move. But this situation may change soon. At a public hearing last week, Senator Cynthia Lummis’ general counsel revealed that the U.S. SEC has granted BNY Mellon a conditional exemption from the agency’s SAB 121 guidance, which requires entities that choose to custody crypto assets to list them on their balance sheets and create corresponding liabilities equal to the value of the crypto. BNY Mellon, the largest U.S. custodian, appears to have received approval to custody cryptocurrencies. Palmer said that if the SEC’s lenient stance on digital assets and rising institutional interest extend from financial institutions such as BNY Mellon to enterprises, MicroStrategy may soon have access to large institutional counterparties. “The proceeds generated by MSTR from lending out some of its bitcoins can offset the annual interest on its debt,” he wrote in a report on Tuesday. “If the company is willing to lend out more bitcoins, it can use the associated proceeds as another way to increase its holdings of bitcoins without any concerns about leverage or dilution.” Palmer noted that after issuing convertible bonds and revoking senior notes, MicroStrategy may have gained greater flexibility in accessing capital markets because it has reduced interest expenses and has more unsecured bitcoin reserves. Palmer reiterated his "buy" rating and $215 price target on MicroStrategy shares. MSTR is up more than 115% this year, trading around $147 at press time. (The Block)