How the Fed’s ETF-Buying Strategy Helps MicroStrategy

Jun 10, 2021 | Decrypt News | 0 comments


Many Bitcoin proponents see the US Federal Reserve as Public Enemy No. 1. But the Fed’s recent strategy of buying up company bonds for its balance sheet may have benefited the country’s largest corporate holder of BTC.

This week, publicly traded cloud software firm MicroStrategy revealed plans to sell another $400 million in corporate debt to purchase Bitcoin—and quickly found that demand was high enough to bump the sale to $500 million.

The company already holds 92,079 BTC, which is worth $3.4 billion at today’s exchange rate. The sale of secured notes, which would entitle institutional buyers to a 6.125% annual return for the next seven years, could fund MicroStrategy’s purchase of 13,411 more Bitcoins today.

The Fed’s role in all this stems from the early days of the pandemic when, in an effort to stabilize the economy, it elected to use its money-printing powers to buy up bond exchange-traded funds (ETFs), which are securities that track an asset or group of assets and can be traded like stocks. According to Bloomberg, as recently as March, the central bank was the fourth-biggest holder of the SPDR Bloomberg Barclays High Yield Bond ETF.

“High-yield bonds” are synonymous with junk bonds, so called because they are deemed to be at a higher risk of defaulting. Indeed, the risk of these bonds is even reflected in the ticker of Barclay fund: JNK. The ETF includes bonds from Carnival cruise line, Caesar Entertainment, American Airlines, and, as of today, MicroStrategy.

The amount of MicroStrategy bonds in the fund is not a lot, mind you—just 0.01% of the more than $10 billion in the ETF. And the Fed’s share, presuming it hasn’t sold its stake in Q2, would be even smaller.

Federal Reserve Is ‘Dogecoining the US Dollar’: Rep. Davidson

But it does mean that the Fed has helped MicroStrategy max out its crypto holdings and become a de facto Bitcoin ETF, even as Fed Chair Jerome Powell has called Bitcoin “more of an asset for speculation” than a means of payment.

The Federal Reserve’s balance sheet has grown from $4.2 trillion in March 2020 to nearly $8 trillion today, part of an expansionary monetary policy that has been criticized by Bitcoin advocates, including some in government, for devaluing the dollar. The number of Bitcoin is capped at 21 million, making it a deflationary asset that theoretically holds its value. 

And now the Fed is hoping that’s true, even if only indirectly.

News Source from

Related Articles

What Is EIP-1559 and Why Are Markets So Excited About It?

What Is EIP-1559 and Why Are Markets So Excited About It?

The Ethereum network has, in its short six-year history, come to dominate cryptocurrencies. While Bitcoin has hogged the headlines thanks to its spectacular rises and falls, Ethereum has cemented itself as the place where people go to build things on blockchain.  But...

Chinese banks roll out 3,000 ATMs that can convert digital yuan to cash

Chinese banks roll out 3,000 ATMs that can convert digital yuan to cash

More than 3,000 automated teller machines (ATM) in Beijing have now been enabled with a feature that can convert China's digital yuan, also known as the e-CNY, into cash, and vice versa.  According to a Xinhua news agency report on Friday, the Beijing branch of the...

Denmark’s largest bank cautious on crypto, but won’t interfere

Denmark’s largest bank cautious on crypto, but won’t interfere

Danske Bank isn't completely sold on cryptocurrency but said it won't stop its customers from using its services in connection with crypto platforms. Danske Bank, the largest bank in Denmark, laid out its official position on cryptocurrencies on June 17, when it...

Pin It on Pinterest

Share This