MSTR (MicroStrategy) increased from $69 at the beginning of the year to a peak of $543 last week, a rise far surpassing Bitcoin! What impresses me is that while BTC was being pressed down due to election corrections, MSTR was soaring. This made me rethink its investment logic: it is not just riding on the BTC concept, but has its own gameplay and logic.
MSTR's core gameplay: issuing convertible bonds to buy BTC
MSTR originally focused on BI (Business Intelligence report systems), but that has long been a sunset industry. Now its core gameplay is: raising funds through issuing convertible bonds, buying up BTC in large quantities, and making it an important part of the company's assets.
1. What is a convertible bond?
In simple terms, the company raises funds by issuing bonds, and investors can choose to receive the principal and interest upon maturity, or convert the bonds into the company's stock at an agreed price.
--- If the stock price rises significantly, investors will choose to convert shares, leading to dilution.
--- If the stock price does not rise, investors may choose to take back their principal and interest, which requires the company to pay a certain cost of funds.
2. MSTR's operational logic:
--- Using the money raised from issuing convertible bonds to buy BTC.
--- Through this method, MSTR's BTC holdings continue to increase, while the BTC value per share is also growing.
For example: According to data from early 2024, the BTC corresponding to every 100 shares increased from 0.091 to 0.107, and by November 16, it rose to 0.12.
Understanding it in conjunction with the chart below will be clearer: The relationship between the issuance of convertible bonds to increase BTC holdings and the diluted shares in the first three quarters of 2024 for MSTR.
--- In the first three quarters of 2024, MSTR increased its BTC holdings from 189,000 to 252,000 (a growth of 33.3%), while the total number of shares was diluted by only 13.2%.
--- The BTC corresponding to every 100 shares increased from 0.091 to 0.107, gradually raising BTC equity holdings. Based on the early year's price: 100 shares of MSTR stock priced at ($69) $6,900, 0.091 BTC ($42,000) priced at $3,822, which seems less economical compared to directly buying BTC (-45%). However, according to this growth model, through continuous bond issuance, the number of BTC held per share will increasingly rise.
3. Latest data:
On November 16, MSTR announced the acquisition of 51,780 BTC for $4.6 billion, bringing its total holdings to 331,200 BTC. According to this trend, the value of BTC corresponding to every 100 shares is already close to 0.12. From a currency perspective, MSTR shareholders' BTC 'equity' is continuously increasing.
MSTR is the 'golden shovel' of BTC.
From a model perspective, MSTR's gameplay is similar to using Wall Street's leverage to mine BTC:
--- Continuously issuing bonds to buy BTC, increasing the BTC holdings per share through share dilution;
--- For investors, buying MSTR shares is equivalent to indirectly holding BTC, while also enjoying leveraged returns from the stock price rising due to BTC's increase.
Here, I believe that smart partners have already discovered that this gameplay is actually quite similar to Ponzi, using new funds raised to subsidize the rights of old shareholders, continuously raising funds through rounds of passing the drum.
4. Until when will this model be sustainable?
--- Increased difficulty in fundraising: If the stock price does not rise, subsequent issues of convertible bonds will become difficult, and the model will be hard to sustain.
--- Excessive dilution: If the speed of issuing new shares exceeds the speed of increasing BTC holdings, shareholder equity may shrink.
--- Homogenization of models: More and more companies are beginning to imitate MSTR's model, and as competition intensifies, its uniqueness may be lost.
The logic and future risks of MSTR
Although MSTR's logic is somewhat like a Ponzi scheme, from a long-term perspective, the accumulation of BTC by large capital in the U.S. has strategic significance. The total amount of Bitcoin is only 21 million, while the U.S. strategic reserve may occupy 3 million. For large capital, 'hoarding coins' is not just an investment behavior, but a long-term strategic choice.
But currently, the risk of MSTR's position outweighs the benefits, so everyone should act cautiously!
--- If the BTC price corrects, MSTR's stock price may suffer a greater decline due to its leverage effect;
--- Whether it can continue to maintain a high-growth model in the future depends on its fundraising ability and the competitive environment in the market.
Reflections and cognitive upgrades
In 2020, when MSTR first hoarded BTC, I remember Bitcoin rebounding from $3,000 to $5,000 at that time. I thought it was too expensive and did not buy, while MSTR bought a large amount at $10,000. At that time, I thought they were too foolish, but BTC soared to $20,000, and it turned out I was the fool. Missing out on MSTR made me realize that the operational logic and cognitive depth of American capital tycoons are worth serious study. Although MSTR's model is simple, it represents a strong belief in the long-term value of BTC. Missing out is not scary; what matters is to learn from it and upgrade one's cognition.
