Although MSTR's logic is somewhat like a Ponzi scheme, in the long run, the strategy of American capital hoarding BTC has strategic significance.
Written by: Uncle Jian
MSTR (MicroStrategy) rose from $69 at the beginning of the year to a peak of $543 last week, far exceeding the rise of Bitcoin! What impresses Uncle is that while BTC was pressed down due to the election, MSTR was soaring. This made me rethink its investment logic: it is not just riding 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 reporting systems), but that industry is already in decline. Now its core gameplay is: raising funds by issuing convertible bonds, buying large amounts of BTC, and making it an important component of company assets.
1. What are convertible bonds?
In simple terms, the company finances by issuing bonds, and investors can choose to receive the principal and interest at maturity or convert the bonds into company shares at a predetermined price.
If the stock price surges, investors will choose to convert their shares, leading to dilution of shares.
If the stock price does not rise, investors choose to take back their principal and interest, and the company needs to pay a certain capital cost.
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, and the value of BTC per share is also growing.
For example: According to early 2024 data, 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 with the diagram below will be clearer: The relationship between the BTC increased through issuing convertible bonds and the diluted shares in the first three quarters of 2024.
In the first three quarters of 2024, MSTR increased its BTC holdings from 189,000 to 252,000 through convertible bonds (an increase 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, and the equity of BTC holdings gradually increased. Based on the price at the beginning of the year: 100 shares of MSTR stock priced at ($69) $6900, 0.091 BTC ($42,000) priced at $3822, which seems quite unprofitable compared to directly buying BTC (-45%). However, according to this growth model, through continuous bond issuance, the amount of BTC held per share will continue to increase.
3. Latest data:
On November 16, MSTR announced it acquired 51,780 BTC for $4.6 billion, bringing its total holdings to 331,200 BTC. At this trend, the BTC value corresponding to every 100 shares is already close to 0.12. From a coin-based 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 holding per share through dilution of shares;
For investors, buying MSTR shares is equivalent to indirectly holding BTC, and they can also enjoy leveraged gains from the stock price rising due to BTC.
By now, I believe smart friends have already realized that this gameplay is quite similar to a Ponzi scheme, using the newly raised funds to subsidize the rights of old shareholders, continuously fundraising round after round.
4. When will this model no longer be sustainable?
Increased fundraising difficulty: If the stock price does not rise, subsequent issuance of convertible bonds will become difficult, and the model will be hard to sustain.
Over-dilution: If the speed of issuing new shares exceeds the speed of BTC accumulation, shareholder equity may shrink.
Homogenization of the model: More and more companies are beginning to imitate MSTR's model, and its uniqueness may be lost as competition intensifies.
MSTR's logic and future risks
Although MSTR's logic is somewhat like a Ponzi scheme, in the long run, the strategy of American capital hoarding BTC has strategic significance. The total number of bitcoins is only 21 million, and the U.S. national strategic reserves 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 operate cautiously!
If the BTC price pulls back, MSTR's stock price may suffer a larger 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 market competition environment.
Uncle's reflection and cognitive upgrade
In 2020, when MSTR first hoarded BTC, Uncle remembers Bitcoin bouncing from $3000 to $5000. Uncle thought it was too expensive and didn’t buy, while MSTR bought heavily at $10,000. At that time, Uncle still thought they were foolish, but in the end, BTC soared to $20,000, and the fool turned out to be Uncle himself. Missing out on MSTR made Uncle realize that the operational logic and cognitive depth of American capital big shots 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's important is to learn from it and upgrade one's understanding.
