First, let's be excited for Bitcoin reaching $98,000, which we all love!
Without a doubt, the contributors to the rise from $40K to $70K are Bitcoin's ETFs, and the contributors to the rise from $70K to $100K belong to MicroStrategy (MicroStrategy).
Now many people compare MicroStrategy to the BTC version of Luna, which makes me a bit embarrassed because Bitcoin is my favorite cryptocurrency, while Luna happens to be my least favorite.
I hope this post can help everyone better understand the relationship between MicroStrategy and Bitcoin.
First, a few conclusions at the beginning:
MicroStrategy is not Luna; its safety cushion is much thicker.
MicroStrategy increases its Bitcoin holdings through bonds and selling shares.
MicroStrategy's upcoming debt repayment date is in 2027, which gives us a full two years more.
MicroStrategy's only soft threat is Bitcoin whales.
【MicroStrategy is not Luna; it has a much thicker safety cushion】
MSTR Net Value vs Bitcoin Price
MicroStrategy was originally a software company with a lot of floating profits and did not want to invest in production anymore, so it began to shift from real to virtual, starting in 2020, using its own money to buy Bitcoin.
Later, MicroStrategy used all the money on its books to buy Bitcoin and began leveraging. Its way of leveraging is through off-market leverage, determined to raise money to buy Bitcoin by issuing corporate bonds.
The essential difference between it and Luna is that Luna and UST print each other; essentially, UST is meaningless unanchored printing, barely maintained by 20% fake interest.
But MicroStrategy is essentially a bottom-fishing strategy with leverage; it's a standard case of borrowing money to go long, and it has bet in the right direction.
The adoption of Bitcoin far exceeds that of UST, and MicroStrategy's influence on Bitcoin is significantly lower than Luna's influence on UST. It's a simple principle; just as 2% daily is a Ponzi scheme, 2% annually is a bank; quantitative changes lead to qualitative changes, and MicroStrategy is not the only factor determining Bitcoin, so MicroStrategy is certainly not Luna.
【MicroStrategy increases its Bitcoin holdings through bonds and selling shares】
In order to quickly raise funds, MicroStrategy has issued multiple debts totaling $5.7 billion (for everyone's intuitive understanding, this is equivalent to 1/15 of Microsoft's debt).
And almost all this money is used to constantly increase their Bitcoin holdings.
Everyone has used on-market leverage before; you need to use Bitcoin as collateral, and the exchange (and other users) will lend you money. But off-market leverage is different.
All creditors are only worried about one thing: not repaying the debt. Without collateral, why are people willing to lend money to MicroStrategy off-market?
MicroStrategy's bond issuance is interesting; over the years, it has issued a type of convertible debt.
This convertible bond is very interesting; let’s take an example:
Bondholders have the right to convert their bonds into MSTR shares, divided into two phases:
1. Initial Phase:
1.1 If the trading price of the bonds drops >2%, creditors can exercise their rights to convert the bonds into MSTR shares and sell them to recover their capital;
1.2 If the trading price of the bonds is normal or even rises, creditors can sell the bonds in the secondary market at any time to recover their capital.
2. Later Phase: When the bonds are about to expire, the 2% rule no longer applies; bondholders can either take cash and leave or directly convert the bonds into MSTR shares.
Let’s analyze this; for creditors, this is generally a sure profit business.
If Bitcoin drops and MSTR has money, creditors can get cash back.
If Bitcoin drops and MSTR has no money, creditors still have a final safety net, which is to convert it into stock and liquidate to recover their principal;
If Bitcoin rises, MSTR will rise, and creditors can give up cash and still get more stock returns.
In short, this is a trade with a high lower limit and a very high upper limit, so MicroStrategy smoothly raised money.
Fortunately, no, it should be said that loyally, MicroStrategy chose Bitcoin.
Bitcoin has not let it down either.
2024 MicroStrategy stock price trend
As Bitcoin continues to soar, the Bitcoin holdings that MicroStrategy accumulated early on have also risen significantly. According to the old and classic principle of stocks, the more assets a company has, the higher its market value should be.
So, MicroStrategy's stock price has soared to the sky.
MicroStrategy's daily trading volume has already surpassed this year's absolute giant Nvidia. Thus, MicroStrategy now has more choices.
Now MicroStrategy relies not only on issuing bonds but can also directly issue more shares to raise money.
Unlike many meme coins or Bitcoin developers who do not have minting rights, traditional companies can issue more shares after following the relevant processes.
Last week, Bitcoin was able to rise from just over $80K to the current $98K, thanks to MicroStrategy’s support. Indeed, MicroStrategy issued more shares, raising $4.6 billion.
PS: A company with a trading volume exceeding Nvidia naturally has this liquidity.
Sometimes, when you admire a company making great profits, you need to respect its great courage.
Unlike many companies in the crypto space that cash out immediately, MicroStrategy has maintained a full-scale approach as usual. MicroStrategy has reinvested all the money from selling stocks into Bitcoin, pushing Bitcoin to $98K.
By this point, you should have understood MicroStrategy's magic:
Buy Bitcoin → Stock price rises → Borrow to buy more Bitcoin → Bitcoin rises → Stock price further increases → Borrow more → Buy more Bitcoin → Stock price continues to rise → Issue more shares to sell for cash → Buy more Bitcoin → Stock price continues to rise…
Presented by the great magician MicroStrategy.
【MicroStrategy's upcoming debt repayment date is in 2027; we still have at least 3 years】
As long as there is a magician, there will be a time to expose the magic.
Many MSTR shorts believe it has already reached the standard left side and even suspect it has reached the Luna moment.
However, is the reality really like that?
According to recent statistics, MicroStrategy's average cost for Bitcoin is $49,874, which means it is now close to a floating profit of 100%, this is a super thick safety cushion.
Let’s assume the worst-case scenario: even if Bitcoin drops 75% from its current level (which is almost impossible), down to $25,000, what would happen?
MicroStrategy borrows through off-market leverage, which has no liquidation mechanism. Angry creditors can at most convert their bonds into MSTR shares at the designated time and then angrily dump them on the market.
Even if MSTR is smashed to zero, it still does not need to be forced to sell these Bitcoins because the earliest due date for the debt MicroStrategy borrowed is actually in February 2027.
You better watch out, this is not 2025, nor 2026, it is Tom's 2027.
That is to say, we have to wait until February 2027, and Bitcoin crashes. If no one wants MicroStrategy's stock, then MicroStrategy needs to sell some of its Bitcoin in February.
All in all, there are still more than two years left to continue the music and dance.
This is the magic of off-market leverage.
---- Divider ----
You might ask, could MicroStrategy be forced to sell Bitcoin due to interest?
The answer is still negative.
Due to MicroStrategy's convertible bonds, creditors generally profit without loss, so its interest is quite low. For example, the one maturing in February 2027 has an interest rate of 0%.
Creditors purely seek MSTR stock.
And the subsequent debts issued have interest rates of 0.625%, 0.825%, with only one at 2.25%, which has little impact, so there's no need to worry about its interest.
MicroStrategy's main bond interest, source: bitmex
【MicroStrategy's only soft threat is Bitcoin whales】
At this point, MicroStrategy and Bitcoin have become mutually causal.
More companies are ready to start learning — from the great maneuvers of David Saylor in the Bitcoin world.
For example, a listed Bitcoin mining company MARA has just issued $1 billion in convertible bonds for Bitcoin, specifically aimed at bottom fishing.
So I think short sellers should act cautiously; if more people start to follow MicroStrategy, Bitcoin's momentum will be like a runaway horse, after all, there is nothing but vacuum above.
So, now MicroStrategy's biggest opponent is only those ancient Bitcoin whales.
As many people predicted earlier, retail investors have already handed over their Bitcoins; after all, there are too many opportunities, such as the meme trend. I don't believe everyone is empty-handed.
So, there are only these whales in the market; as long as these whales do not move, this momentum is hard to stop. If we get a bit luckier, and the whales and MicroStrategy form some small tacit agreement, it will be enough to push Bitcoin towards a bigger future.
This is also a major difference between Bitcoin and Ethereum: Satoshi theoretically owns nearly 1 million early-mined Bitcoins but has never been heard from since; while the Ethereum Foundation, for some reason, sometimes particularly wants to sell 100 ETH to test liquidity.
As of the day of writing, MicroStrategy has reached a floating profit of $15 billion, relying on loyalty and faith.
Since it is making money, it will increase its investment; it can no longer turn back, and more people will follow suit. According to the current momentum, $170K is the mid-term target for Bitcoin (not financial advice).
Of course, we are used to seeing conspiracy groups design conspiracies every day in memes; occasionally seeing a real top-level grand strategy is truly admirable.
Author of this article:
0xTodd | Nothing Research Partner
