MicroStrategy

Case Study
December 2020
Overview

Highlights

∙ In two landmark investment tranches, MicroStrategy became the first publicly traded company to
acquire a large allocation of bitcoin to hold on its balance sheet as a primary treasury reserve asset.

∙ Coinbase was selected as the primary execution partner for the transactions.

∙ Using Coinbase’s agency OTC desk and suite of routing and algorithmic trading tools, Coinbase was
able to help MicroStrategy acquire its desired position without incurring market impact while
beating the market VWAP in the process.

Background Challenge
MicroStrategy (MSTR) is a publicly traded business In June 2020, MicroStrategy expressed interest in
intelligence and software company, with a market investing their own capital in bitcoin. The
cap of $2.50bn (as of 11/25/2020). Michael Saylor, company found bitcoin to have distinctive
Chairman and CEO of MicroStrategy, has become properties that allow it to be used as a hedge
a pioneer for CEOs looking to diversify their against inflation and, in addition, earn higher
capital. The MicroStrategy team spent months returns than other asset classes. To start,
deliberating their new capital allocation strategy MicroStrategy was looking for a leading partner
amidst a macro backdrop which includes an with the crypto and institutional expertise and
economic and public health crisis driven by experience to help them invest in bitcoin as part
COVID-19, unprecedented fiscal stimulus of their new capital allocation strategy.
measures, including quantitative easing, around
the world, and political and economic uncertainty.

“Our investment in bitcoin is part of our new capital allocation strategy,

Chairman and CEO, MicroStrategy

For more information please contact [email protected]

1Source: https://ir.microstrategy.com/news-releases/news-release-details/microstrategy-adopts-bitcoin-primary-treasury-reserve-asset

Solution

MicroStrategy was interested in learning about Coinbase’s execution expertise,

experience with corporate customers, security standards, and white glove

customer service.

Choosing Coinbase

After carefully evaluating multiple providers, MicroStrategy chose Coinbase as their primary execution

partner based on the following three criteria:

1. Smart Order Routing

Individual exchanges do not have sufficient liquidity to service large, institutional-sized orders. Coinbase’s

smart order router solves this problem by aggregating liquidity from multiple venues (exchanges and market

makers) and routing orders algorithmically to find the best all-in prices possible.

2. Trading Algorithms

Coinbase’s trading algorithms are used to work large orders over longer periods of time in order to minimize

price impact and help achieve the best average price. Each algorithm is optimized to take into consideration

the client’s degree of urgency for their trade, ranging from very passive to more aggressive. For example,

Coinbase’s Time Weighted Average Price (TWAP) algorithm will complete an order over a specified window of

time, splitting the main order into many smaller orders that are then sent to different pools of liquidity, using

the Smart Order Router to choose the best pool. In the example of the MicroStrategy execution, while the

human traders input a few hundred orders, the algorithms converted that into close to 200,000 child fills,

where the average fill size was less than 0.3 BTC. Having lots of experience executing larger orders, we have

tuned our algorithms to minimize impact, using techniques like placing smaller orders across many liquidity

pools to not disturb the market, and randomizing the size and timing order orders to not leave a noticeable

pattern to other traders.

3. White Glove Service

Coinbase’s experienced trading, coverage and client services teams helped MicroStrategy plan and execute

the trade, taking into consideration market liquidity and other factors. Our “agency” trading model means

that we have one job which is to get clients like MicroStrategy the best price possible because we are not

trading from our own inventory. We are never put in the conflicted position of having to manage our own

profit and loss, and keep the clients’ best interest in mind at the same time. That puts Coinbase in the critical

position of being the client’s partner and trusted advisor, especially important when helping clients enter

cryptocurrency markets for the first time.

For more information please contact [email protected]

Experience

MicroStrategy’s initial $250M investment in bitcoin took place over a period of five

days. Each day the Coinbase trading team had numerous calls with MicroStrategy

to check in, provide updates, and review reports on all of the trading fills.

Onboarding

The Coinbase coverage and OTC teams had a series of pre-trade calls with MicroStrategy to better

understand what trade execution goals we should work towards and then worked with MicroStrategy to

develop a trading plan. Together, the team evaluated data and analysis provided by Coinbase on global

liquidity and the most optimal pace to minimize impact, and decided on a plan of action.

The first step was to conduct a small “test trade” so that MicroStrategy could evaluate the effectiveness of

the trading strategy. MicroStrategy reviewed the post-trade report for the test trade and gave the trading

team the green light to proceed with the larger investment.

Trading Experience

Following the successful test, Coinbase began to execute the larger trade. The plan was to use the Time

Weighted Average Price algorithm to execute the trade over a period of five days, while staying in close

contact with the MicroStrategy team to evolve the execution instructions based on where the market traded.

This enabled MicroStrategy to take advantage of any weakness in the Bitcoin price and buy more, while also

slowing down the execution at less attractive price levels.

Each day, MicroStrategy had a 9am call with the Coinbase trading team to start trading and report overnight

fills. At 2pm MicroStrategy had another call to check in to review progress from the morning. At 9pm

MicroStrategy had an additional scheduled call with the Coinbase trading team to settle the last trade and

report afternoon fills. Throughout the trade, the Coinbase trading team proactively reached out to provide

useful market information at the appropriate times and the MicroStrategy team had a point of contact they

could speak to 24/7 if they had any questions or wanted to amend instructions.

MicroStrategy went on to invest an additional $175M in bitcoin following the success of the first trade, for a

total investment of $425M.2

For more information please contact [email protected]

2$425M is inclusive of all fees.

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