MicroStrategy and Tether have both made headlines this quarter, reflecting contrasting market dynamics in the cryptocurrency sector. MicroStrategy's Q3 earnings fell short of expectations, leading to a significant drop in its share price amid concerns about potential volatility tied to Bitcoin's performance and the upcoming US elections. Meanwhile, Tether reported record-breaking profits for the third quarter, driven by strong demand for its USDT stablecoin and strategic investments in US Treasury bonds.
MicroStrategy Faces Share Decline as Q3 Earnings Miss Analysts' Expectations Amid Bitcoin Volatility Concerns
MicroStrategy’s share price took a significant hit following the release of its third-quarter earnings, which fell slightly below analysts' forecasts. The tech and Bitcoin-centric firm, led by Michael Saylor, has transformed itself into one of the largest institutional Bitcoin holders, positioning its stock as a de facto Bitcoin proxy. However, the company’s close relationship with Bitcoin has also exposed it to substantial price fluctuations, a point emphasized by experts who warn that the upcoming US presidential election could add volatility to MicroStrategy’s stock price.
In an announcement on Oct. 30, MicroStrategy reported a Q3 revenue of $116.1 million from its core software business, marking a 10.3% decline year-over-year and falling roughly 5.22% below Wall Street's expectations. Although the firm did see a 5.1% return on its substantial Bitcoin holdings, which remains a key pillar of its asset strategy, its overall financial performance led to market concerns about its valuation, driving a notable 4.23% drop in its stock price to $247.31 by the close of trading.
After hours, the decline continued, with shares slipping an additional 1.75% to $242.99, indicating a cumulative 5.9% drop for the day. The market’s reaction comes amid broader concerns about the company’s near-term stability, particularly in the face of potential economic and regulatory changes surrounding Bitcoin, which remains central to MicroStrategy’s asset portfolio.
In recent years, MicroStrategy has boldly rebranded itself as a “Bitcoin development company,” diverging from its traditional software business to embrace Bitcoin as a primary asset. Under the leadership of Michael Saylor, the company has publicly advocated for Bitcoin as a form of “digital capital,” a concept Saylor has pushed as transformative for financial markets. On a recent earnings call, Saylor compared MicroStrategy’s Bitcoin-driven strategy with the approaches of leading tech giants like Nvidia and Tesla. Since August 2020, MicroStrategy’s growth has reportedly surged by 1,989%, outperforming Nvidia’s 1,165% growth over the same period.
However, Saylor emphasized that while companies like Nvidia focus on niche sectors like AI, MicroStrategy’s adoption of “digital capital” can serve as a replicable playbook for others. Saylor asserted that the company represents the beginning of a broader digital transformation, predicting that as Bitcoin adoption continues, other firms will soon follow suit. “Bitcoin is digital capital, and in time, dozens of companies will realize this, then hundreds, then thousands,” he said, bringing attention to the potential for massive adoption in the coming years.
Despite Saylor’s optimism, Network economist Timothy Peterson cautioned that the upcoming US presidential election on Nov. 5 could bring additional turbulence to MicroStrategy’s stock price. Peterson pointed out that MicroStrategy’s stock has a high “beta” to Bitcoin—meaning its price moves more dramatically in response to Bitcoin’s fluctuations. Consequently, if Bitcoin were to decline following the election, Peterson believes MicroStrategy’s stock could suffer a disproportionately steep drop.
“The leverage in its Bitcoin holdings amplifies downside risk, causing MSTR to lose more value than Bitcoin itself in a downturn,” Peterson explained. He projected that if Bitcoin experiences a significant drop post-election, MicroStrategy could witness a decline two to three times greater than Bitcoin’s percentage drop, due to the heightened sensitivity of its stock to the cryptocurrency’s price movements.
Strategic Bitcoin Accumulation Plan: ‘21/21’ Plan
Despite these market concerns, MicroStrategy remains undeterred in its commitment to Bitcoin. As part of its future strategy, the company unveiled an ambitious initiative to raise $42 billion over the next three years to fund additional Bitcoin acquisitions. This plan, aptly named the “21/21” plan, aims to secure $21 billion through equity and another $21 billion through fixed-income securities over the next three years.
MicroStrategy’s dedication to Bitcoin has been lauded by some investors who see the firm as a pioneer in the institutional adoption of cryptocurrency. The company’s strategy has often attracted Bitcoin enthusiasts looking for a publicly traded proxy for Bitcoin exposure. With Bitcoin currently trading near its all-time high of $73,679, analysts note that MicroStrategy’s stock could surge if Bitcoin surpasses this high-water mark. Peterson also suggested that if Bitcoin reaches new highs, MicroStrategy’s stock might rally significantly due to its correlation with the cryptocurrency’s performance.
While MicroStrategy’s innovative approach to Bitcoin positions it at the forefront of the digital asset transformation, the road ahead is not without its challenges. The firm’s substantial Bitcoin holdings expose it to volatile price swings, which could be exacerbated by macroeconomic events, including the looming US presidential election. This heightened risk sensitivity is a double-edged sword for investors: while they stand to benefit from a rising Bitcoin price, they may face outsized losses if the cryptocurrency’s price falters.
Despite these risks, Saylor remains committed to the belief that MicroStrategy’s vision of “digital capital” will ultimately redefine corporate balance sheets. By doubling down on Bitcoin through its “21/21” plan, MicroStrategy has made a long-term bet on cryptocurrency’s future role in global finance. The firm’s strategy, if successful, could mark the beginning of a larger trend among corporations adopting Bitcoin as a core asset, potentially revolutionizing traditional financial paradigms.
Tether Sets New Profit Records in Q3 2024 Amid Rising Demand for USDT and Strategic Investment in U.S. Treasury Bonds
In related news, Tether, the leading stablecoin issuer, announced another record-breaking quarter, reporting an impressive $2.5 billion in profit for the third quarter of 2024. This stellar performance has pushed Tether’s consolidated profits for the year to $7.7 billion, with the company’s attestation report released on Oct. 31 showcasing robust figures across its financial portfolio. With a growing demand for its USDT stablecoin and the firm’s strategic positioning in US Treasury bonds, Tether has solidified its dominance in the stablecoin market and continues to assert itself as a major financial powerhouse.
According to Tether's report, the company now boasts total assets of $134.4 billion and an equity base of $14.2 billion. Much of this growth stems from surging demand for USDT, which has grown by nearly 30% in circulation this year alone, adding $27.8 billion in new tokens to the market. This brings Tether’s total USDT circulation to a remarkable $120 billion, further solidifying its position as the world’s most widely used stablecoin.
The demand for USDT, which is widely used for trading, payments, and as a liquidity source within the digital asset ecosystem, has contributed significantly to Tether’s record-breaking earnings. Beyond demand, the high yields on US Treasury bonds, which back Tether’s reserves, have served as a vital income source amid the current high-interest-rate environment in the United States.
Tether’s strategic investment in US Treasury bills has strengthened its reserve holdings to over $105 billion in cash and cash equivalents, including $102.5 billion in US Treasuries alone. This represents a 5% increase from July when the firm held $97.6 billion in US Treasury securities. Tether’s US debt holdings now place it among the 18 largest global holders of American debt, surpassing the reserves of countries such as Germany, Australia, and the UAE.
The Treasury holdings highlight Tether’s reliance on traditional financial instruments to back its digital asset reserves. In the highly competitive stablecoin sector, these strategic investments also allow Tether to continue providing liquidity and value stability for USDT, particularly as regulatory scrutiny tightens on the stablecoin industry.
In 2024 alone, Tether’s reserves have surged by 15%, now totaling over $125 billion. This buffer strengthens Tether’s stability, providing assurance to its vast user base that USDT is fully backed by reliable assets. With total liabilities from token issuance standing at $119 billion, Tether’s reserve backing remains resilient, allowing the company to continue operating smoothly while fulfilling redemptions and maintaining the dollar peg for its stablecoin.
Additionally, Tether’s reserves strategy reflects a balanced risk portfolio. Alongside its US Treasury holdings, Tether has diversified into other high-value assets, including gold and Bitcoin. Tether's gold holdings alone generated approximately $1.1 billion in unrealized profits for Q3, a strong asset that has bolstered its portfolio amid fluctuating markets. The company also holds 7,100 BTC, valued at nearly $500 million.
Beyond its stablecoin issuance and asset management, Tether has actively expanded into various industries, investing in sectors such as renewable energy, Bitcoin mining, AI, telecommunications, and education. These investments signal Tether’s commitment to leveraging blockchain and cryptocurrency in fostering innovation across the global economy.
Tether’s expansion has been paralleled by its strategic engagement with US authorities. Following regulatory crackdowns after the FTX collapse in 2022, Tether has strengthened its compliance framework, with particular focus on transparency and working with US authorities. In 2021, Tether settled with the CFTC for a $41 million fine and reached an $18.5 million settlement with the New York Attorney General over prior misrepresentations of its stablecoin backing. Since then, Tether has bolstered its regulatory stance, bringing the FBI onto its platform in 2023, demonstrating a commitment to collaboration with US authorities and an interest in ensuring safe and compliant operations.
Celebrating a Decade of Market Influence
This year marks Tether’s tenth anniversary, an impressive milestone for the company that first introduced the concept of a stablecoin. In the decade since its founding, Tether has become the market’s leading stablecoin issuer, with a growing market share. This growth has been largely attributed to US regulatory actions that have bolstered demand for reliable, dollar-pegged assets like USDT.
Stablecoins continue to play a critical role in the broader cryptocurrency ecosystem, providing a secure, liquid alternative to more volatile assets. As other companies raise fees or tighten redemption policies, such as Circle’s recent move to increase cash-out fees for its USDC stablecoin, Tether’s consistent market presence offers a degree of stability for users and institutions alike.
