Metaplanet Doubles Down: $130 Million Loan for More Bitcoin Amid $643 Million Loss – Is This a Smart Move?

Summary:
Metaplanet, Japan's largest corporate Bitcoin holder, has secured a loan of $130 million to purchase more Bitcoin (BTC) despite experiencing significant unrealized losses. The strategic move is part of a broader effort to strengthen its financial position and increase BTC holdings.

Key Takeaways

Metaplanet has obtained a $130 million loan to buy more Bitcoin despite a reported $643 million in unrealized losses.
The loan comes from a previously established credit facility and is fully backed by the company's Bitcoin reserves.
Metaplanet holds over 30,000 BTC, valued at approximately $2.7 billion, but this value is currently lower than their acquisition cost.
The firm plans to use the loan for Bitcoin accumulation, expanding its income-generating operations, and share buybacks.
Despite market challenges, Metaplanet continues to focus on its long-term goal of acquiring 210,000 BTC by 2027.

Metaplanet Doubles Down: $130M Loan to Buy More BTC Despite $643M Loss—Bold or Reckless?

Metaplanet's Bold Bitcoin Strategy

Metaplanet, recognized as Japan's largest corporate Bitcoin holder, has recently secured a $130 million loan to further its investment in BTC, even while grappling with significant unrealized losses. This strategy was unveiled in a filing made on November 21, which pertains to a credit facility of $500 million established in late October.

The identity of the lending party remains confidential at their request. According to the filing details, the loan has a floating interest rate, renews daily, and offers flexibility for repayment at any time. Notably, this loan is fully secured by Metaplanet's Bitcoin reserves.

As it stands, Metaplanet possesses 30,823 BTC, approximately valued at $2.7 billion, with an average purchase price of $108,070 per BTC and a total cost of $3.33 billion.

With Bitcoin's current trading price being lower than its purchase cost, Metaplanet faces an unrealized loss of $635.97 million, translating to a decrease of 19.1%, based on its latest treasury updates.

Utilizing Bitcoin for Financial Growth

In a recent statement, Metaplanet emphasized the strong collateral capacity of its Bitcoin holdings. By the end of October, the value of its Bitcoin reached around $3.5 billion, which indicates that the $230 million it has drawn from the credit line is a minor portion of the collateral available.

The company highlighted that its borrowing strategy provides a sufficient buffer against volatility in Bitcoin prices. The funds from this new loan will be utilized for purchasing further Bitcoin, enhancing its Bitcoin-related income-generating ventures, and executing share repurchases as market conditions permit. Notably, the revenue generated from its Bitcoin options trading reached a record high in the third quarter.

Supporters label this strategy as a calculated bet on Bitcoin's potential for long-term appreciation. Metaplanet has established BTC as the foundation of its financial structure, using it as a hedge against the devaluation of Japan's yen. Critics, however, warn that leveraging such a volatile asset might lead to situations requiring forced asset sales. A sudden drop in price could lead to margin calls and potential liquidations, and investor skepticism is reflected in the lack of consistent stock performance relative to the increasing Bitcoin reserves.

Market Challenges and New Initiatives

Metaplanet’s loan comes at a crucial time as the Tokyo-listed company re-evaluates its capital structure and looks for alternatives to increase its equity without issuing more standard shares.

Recently, the firm announced plans to create two classes of preferred shares, termed internally as “Mars” and “Mercury,” aimed at raising capital while limiting shareholder dilution. The first sale of 23.6 million Mercury shares brought in ¥21.2 billion ($135 million) at a 4.9% annual dividend, with an option to convert to common stock if Metaplanet's share price triples from its current rate. Meanwhile, the Mars class features a variable dividend and no conversion option, giving it a higher priority over common shares.

Metaplanet noted that this preferred share initiative is pivotal, especially after its stock began trading below the value of its Bitcoin reserves. Its market-to-net-asset-value ratio now stands at 0.99, signaling a rare discount and prompting a ¥75 billion share repurchase program. In October, Metaplanet became the first major company with significant Bitcoin holdings to trade consistently below its net asset value.

This market pressure coincides with a downturn in the cryptocurrency sector, with Bitcoin having recently fallen by 10% in a single trading session, and similar declines observed for Ethereum and Solana. Presently, 26 out of 168 Bitcoin-holding firms trade below their crypto reserve values. Corporate Bitcoin accumulation has also plummeted, falling to just 1,428 BTC in September, a staggering 95% decrease since July. Competitors like Marathon, Bitmine, and Galaxy Digital have reported substantial unrealized losses as well.

Despite the current market strains, Metaplanet remains steadfast in its long-term goal of accumulating 210,000 BTC by 2027, achieving an increase of 17,000 BTC in Q3, ahead of its annual plans.

The company also reported a net profit of ¥13.5 billion for the quarter, boosted by a rebound in Bitcoin prices following September's downturn.