MicroStrategy has already spent over $16.5 billion on buying Bitcoin, and this $16.5 billion mainly comes from two sources.
Written by: 0xjs, Golden Finance
Bitcoin breaks $80,000! Bitcoin breaks $90,000! Bitcoin breaks $95,000! Bitcoin breaks $99,000!
Clearly, Bitcoin is bound to break through the $100,000 mark very soon.
Common sense tells us that the direct reason for a significant price increase is that someone is buying in large amounts with real money, after all, 'Money Talks'.
In this round of the crypto bull market, the cryptocurrency tokens have divided severely, with the two most prominent sectors being Bitcoin and Solana. The rise of Solana mainly comes from the influx of crypto players into Memes, while the rise of Bitcoin's buying funds mainly comes from U.S. Bitcoin ETFs and some listed companies, especially MicroStrategy. This article mainly focuses on MicroStrategy.
On November 21, a Golden Finance reporter spent an evening browsing the SEC's official website to review the documents submitted by MicroStrategy since 2021, deeply analyzing MicroStrategy's behavior and funding source for buying Bitcoin. The conclusion is that MicroStrategy is an upgraded version of 'Grayscale + Luna'.
First, let's look at the overall situation of MicroStrategy, then analyze the funding sources for MicroStrategy's Bitcoin purchases, and finally compare Grayscale and Luna. Here it is.
MicroStrategy fears neither bull nor bear: spending over $16 billion steadfastly on Bitcoin purchases.
Since implementing its Bitcoin reserve strategy in September 2020, MicroStrategy has steadfastly executed its Bitcoin reserve strategy through market cycles without fear of bull or bear, such as buying Bitcoin at over $59,000 in April and November during the bull market of 2021.
MicroStrategy continues to buy BTC ceaselessly.
Golden Finance reporters have found that as of November 22, 2024, MicroStrategy has cumulatively spent $16.58 billion on buying Bitcoin and currently holds 331,000 Bitcoins, with a Bitcoin value of nearly $33 billion.
Since the successful issuance of Bitcoin ETF in January 2024, the Bitcoin managed by Bitcoin ETF has exceeded 1.24 million coins, with a total asset value exceeding $120 billion and a total net inflow of approximately $30.3 billion. Bitcoin ETF is the investment target for many investors, not just from a single investor.
In sight, MicroStrategy might be the single entity that spends the most on buying Bitcoin.
So the question arises, where does all this funding for MicroStrategy's Bitcoin purchases come from?
Golden Finance reporters reviewed the reports submitted by MicroStrategy to the SEC, and its funding mainly comes from two sources: Convertible Senior Notes and At-the-Market Equity Offerings.
Among these, Convertible Senior Notes are aimed at qualified institutional investors, while At-the-Market Equity Offerings are directly aimed at the secondary market.
Convertible Senior Notes: $7.26 billion for qualified institutional investors.
Here is a list of notes issued by MicroStrategy since 2020; except for the $500 million senior secured debt issued in June 2021, all others are Convertible Senior Notes.
Among them, the $3 billion of newly issued Convertible Senior Notes by MicroStrategy on November 21, 2024, can be used at any time to buy Bitcoin. Perhaps in the last day or two, when MicroStrategy uses this $3 billion to buy Bitcoin, it will be the time Bitcoin breaks $100,000.
Understanding what Convertible Senior Notes are, you will find that it is indeed a good financial tool.
The so-called Convertible Senior Notes are a special type of debt security that includes an option to convert the notes into a predetermined number of the issuer's shares. If the stock rises, it can be converted into shares; if the stock price is low, interest payments are made according to the debt. Moreover, the Convertible Senior Notes have priority over all other debt securities issued by the same organization and have priority for compensation. Therefore, it is a bond with high returns on top and guaranteed minimum returns below.
Importantly, Convertible Senior Notes generally come with a mandatory redemption clause. After the specified prohibition period has passed or the early redemption clause is triggered, the issuer may initiate a mandatory redemption. Before the designated redemption date, investors need to convert the Convertible Notes into company stock; otherwise, the issuer has the right to redeem the Convertible Notes at the face value plus accrued interest. In most cases, investors will actively convert to stock.
Taking MicroStrategy's already redeemed 2025 Convertible Notes as an example, the 2025 Convertible Notes maturity date is December 15, 2025. However, on June 13, 2024, MicroStrategy announced that holders of the 2025 Convertible Notes could choose to convert the notes at an applicable conversion rate of 2.5126 shares of MicroStrategy Class A common stock for every $1,000 principal before 5:00 PM New York time on July 11, 2024 (reflecting a conversion price of $397.99 per share). Otherwise, MicroStrategy will forcibly redeem all unpaid notes on July 15 at a price equal to the principal plus accrued unpaid interest.
On that day, MicroStrategy's stock price was around $1,300 (MicroStrategy completed a 1:10 stock split on August 8, the $1,300 price was before the split), it is evident that creditors would choose to convert their debts into stock. Once creditors receive the stock, they complete the arbitrage.
Why are institutional investors eager to purchase MicroStrategy's Convertible Senior Notes? Because the risk is extremely low, essentially guaranteeing profits, as Convertible Senior Notes have priority claims. Currently, MicroStrategy's total liabilities from Convertible Senior Notes are $7.26 billion, while the Bitcoin held by MicroStrategy is worth nearly $33 billion; even if Bitcoin drops by 75%, MicroStrategy's Convertible Senior Notes creditors will not lose money.
It can be said that the most important motivation behind convertible bonds is for the issuer to encourage investors to actively choose to convert their debt into stock, so the issuer does not have to use cash to repay the debt.
At-the-Market Equity Offerings: nearly $10 billion in the secondary market.
Below is the market stock issuance data of MicroStrategy since 2020. Over the past four years, MicroStrategy has raised a total of $9.8235 billion directly in the secondary market through new stock issuance, and all these funds have been used by MicroStrategy to purchase Bitcoin.
The so-called At-the-Market Equity Offering refers to the follow-up stock issuance conducted by publicly traded companies after their IPO to raise funds. In ATM issuance, the listed company gradually sells newly issued stocks to the secondary trading market through designated brokers at the market price over a period of time. Brokers sell the issuing company's stocks on the open market to obtain cash profits and then deliver the profits to the issuing company.
Let's take MicroStrategy's ATM Equity Offering as an example. On August 1, 2024, MicroStrategy signed a sales agreement (the 'August 2023 Sales Agreement') with TD Securities (USA), The Benchmark Company, BTIG, Canaccord Genuity, Maxim Group, and SG Americas Securities brokers. According to this agreement, MicroStrategy may issue and sell its Class A common stock through sales agents from time to time, up to a maximum of $2 billion of stock. According to a Form 8-K provided to the SEC by MicroStrategy on November 11, 2024, MicroStrategy issued a total of 7,854,647 shares, raising a total of $2.03 billion, which was used to buy 27,200 Bitcoins.
On October 30, 2024, MicroStrategy announced its 21/21 plan, stating that it aims to raise $42 billion in capital over the next year, including $21 billion in equity and $21 billion in fixed-income securities, to invest in Bitcoin. On the same day, MicroStrategy disclosed that it reached a sales agreement with TD Securities (USA), Barclays Capital, The Benchmark Company, BTIG, LLC, Canaccord Genuity, Cantor Fitzgerald & Co., Maxim Group, Mizuho Securities USA, and SG Americas Securities to issue $21 billion of MicroStrategy stock at market price. A Form 8-K filed by MicroStrategy with the SEC on November 18, 2024, showed that between November 11 and 17, MicroStrategy sold 13.594 million shares, raising approximately $4.6 billion, which was used to purchase 51,780 Bitcoins.
According to MicroStrategy's plan, brokers still have about $16.4 billion of newly issued MicroStrategy shares available for sale.
Why is MicroStrategy considered an upgraded version of 'Grayscale + Luna'?
Now that we are familiar with MicroStrategy's 'Convertible Notes' and 'At-the-Market Equity Offerings,' let's reflect on how similar they are to Grayscale and Luna in the last bull market, but in an upgraded version.
Grayscale Vs. Convertible Notes:
Let's review how Grayscale operated before it became an ETF. Grayscale trust stocks were issued only to qualified investors, who bought GBTC stocks (Grayscale trust underlying must be backed by corresponding Bitcoin assets) with cash in the over-the-counter market or exchanged physical Bitcoin for GBTC stocks, locking them for 6 months before publicly trading for arbitrage. Meanwhile, GBTC stocks are isolated from the underlying Bitcoin assets, and investors cannot redeem them.
MicroStrategy's Convertible Senior Notes are also aimed at qualified investors, who buy the notes with cash in the over-the-counter market and convert them into MicroStrategy stock upon forced redemption for arbitrage. The Convertible Senior Notes are also isolated from MicroStrategy's Bitcoin.
During the Bitcoin bull market in 2020 and 2021, the premium of GBTC attracted a large amount of arbitrage capital, and GBTC accumulated over 650,000 Bitcoins, which many industry insiders referred to as 'the obvious bull market'.
In this bull market, MicroStrategy has attracted over $7 billion from qualified institutional investors through Convertible Senior Notes, and MicroStrategy's 21/21 plan is also preparing to issue more bonds.
The difference is that MicroStrategy's Convertible Senior Notes have a long maturity date, with the nearest maturity being in 2027, enough to last until the next cycle. If necessary, MicroStrategy can force the redemption of Convertible Senior Notes, allowing investors to convert them into nearly zero-cost newly issued MicroStrategy stock, without MicroStrategy needing to actually repay the money. Even if it redeems at the maturity date, MicroStrategy can issue new Convertible Senior Notes to replace the old ones, just as MicroStrategy redeemed the 2028 Secured Notes with cash from the 2024 Convertible Notes issued on September 20, 2024. Clearly, MicroStrategy's Convertible Senior Notes are more robust.
Luna Vs. At-the-Market Equity Offerings:
In the Luna case, burning $1 of LUNA can mint $1 of the algorithmic stablecoin UST. As long as the LUNA price rises, more UST can be minted, and with more UST, more Bitcoin can be purchased as reserves to stabilize 1 UST = 1 USDT. Luna is directly available to ordinary investors without permission.
MicroStrategy's market stock issuance is very similar and is also directly aimed at ordinary investors in the secondary market. The higher MicroStrategy's stock price, the more dollars it can obtain through market stock issuance, and more dollars can buy more Bitcoin. 'Left foot stepping on the right foot' rises all the way. After the Bitcoin ETF established a bull market in January 2024, MicroStrategy's net asset premium (market price per share / corresponding Bitcoin value - 1) climbed all the way to 2.7. Currently, MicroStrategy holds a total of 331,200 Bitcoins, worth approximately $32.84 billion, while MicroStrategy's total market value once exceeded $100 billion.
Luna and UST can mint in both directions; if UST decouples, arbitrageurs can buy UST at a discount to mint LUNA at 1 UST = 1 USDT, forming a 'death spiral' that leads to the collapse of LUNA. In fact, if the Luna Foundation LFG had bought Bitcoin earlier and more during the upward cycle (it only bought $1.5 billion worth of Bitcoin), if UST could temporarily mint LUNA in one direction, Luna likely would not have collapsed.
MicroStrategy further advanced this strategy, as its market stock issuance is one-sided and will not fall into a death spiral, with nearly zero cost. MicroStrategy is clearly safer than Luna. Even during the bear market of 2022, MicroStrategy's net asset premium was at least 60%.
Source: mstr-tracker
As long as someone is willing to buy MicroStrategy stock issued at market price, the more Bitcoins MicroStrategy buys during its NAV premium period, the thicker MicroStrategy's safety cushion becomes. Ultimately, MicroStrategy's market value could equal its Bitcoin value, meaning MicroStrategy itself faces no risk, as the risk has already been transferred to stock investors.
In summary, can we completely say that MicroStrategy is an upgraded version of 'Grayscale + Luna'?
Conclusion: Triple Maximization
At the Bitcoin conference held in Nashville at the end of July 2024, MicroStrategy CEO Michael Saylor delivered a keynote speech titled 'The Bitcoin Revolution'.
After four years of practice, he proposed a methodology for individuals, companies, institutions, and countries to respond to the Bitcoin revolution, suggesting a triple maximization strategy. For companies, this means buying Bitcoin through three avenues—cash flow, issuing stocks when the stock price is overvalued, and issuing debt when interest rates are low.
He said so, and he did so.
MicroStrategy has already accumulated 331,200 Bitcoins.
