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

MicroStrategy completed a $1.01 billion convertible note issuance this month and purchased 7420 BTC from September 13 to 19, valued at approximately $458.2 million.

Investment bank and research firm Benchmark stated that this latest move indicates that as MicroStrategy issues convertible notes to raise funds for increasing its Bitcoin holdings, the company's balance sheet and financial condition may become stronger.

Benchmark's Mark Palmer pointed out that MicroStrategy Executive Chairman Michael Saylor occasionally mentions the idea of lending part of MicroStrategy's Bitcoin for income, but he believes it is not feasible because there are no trading counterparts with financial strength and robust balance sheets willing to accept such a move. However, this situation may soon change.

At a public hearing last week, Senator Cynthia Lummis' chief legal advisor revealed that the U.S. SEC has granted conditional exemption to BNY Mellon regarding its SAB 121 guidance which requires entities choosing to custody crypto assets list them on their balance sheets and create corresponding liabilities equal in value to the crypto assets. The largest custodian in America, BNY Mellon appears to have been approved for cryptocurrency custody.

Palmer said if SEC’s lenient stance towards digital assets extends from financial institutions like BNY Mellon due to rising institutional interest into corporations then MicroStrategy could soon be dealing with large institutional trading counterparts.

He wrote in Tuesday’s report: "The income generated by MSTR through lending some Bitcoins can offset its annual debt interest. If the company is willing to lend more Bitcoins then it can use related earnings as another way of increasing Bitcoin holdings without any concerns about leverage or dilution."

Palmer noted after issuing convertible bonds and revoking preferred notes; MicroStrategy might have gained greater flexibility entering capital markets since it reduced interest expenses while having more unsecured Bitcoin reserves.

Palmer reiterated his “buy” rating on MicroStrategy stock with a target price of $215 USD per share. So far this year, MSTR has risen more than 115%, with a share price of about $147 USD at the time of publication.