Bitcoin's price breaking through $98,000 is undoubtedly exciting! Reflecting on this wave of market movements, the increase from $40K to $70K was propelled by Bitcoin ETFs, while the key support from $70K to $98K came from MicroStrategy. However, some have likened MicroStrategy to the Bitcoin version of Luna, a comparison that is both awkward and inaccurate. Bitcoin is my favorite cryptocurrency, while Luna is precisely the project I like the least. I hope this article helps everyone better understand the relationship between MicroStrategy and Bitcoin.
Core viewpoint summary
MicroStrategy is not Luna; its safety net is much thicker than Luna's.
MicroStrategy increases its Bitcoin holdings through bond issuance and stock issuance.
MicroStrategy's recent debt repayment deadline is in 2027, providing more than two years of buffer time.
The only potential threat to MicroStrategy comes from the market behavior of Bitcoin whales.
MicroStrategy is not Luna; its security is far greater than Luna's.
MicroStrategy's leverage model
MicroStrategy originally started as a software company, accumulating a large unrealized profit. Since 2020, the company decided to invest these funds into Bitcoin and has gradually transformed into a staunch supporter of Bitcoin. After exhausting its own funds, MicroStrategy began a leverage model by issuing corporate bonds to raise funds to increase its Bitcoin holdings.
The essential difference between MicroStrategy and Luna
Luna's problem lies in its unanchored printing between UST, which relies entirely on a high interest rate of 20% to maintain operations, ultimately collapsing due to a breakdown in the mechanism. In contrast, MicroStrategy has a clear direction and has bet correctly by using a bottom-up investment approach with leverage. The popularity and market acceptance of Bitcoin are far greater than those of UST, and MicroStrategy's influence on Bitcoin is also significantly less than Luna's dominance over UST. Therefore, MicroStrategy cannot simply be viewed as the Bitcoin version of Luna.
How does MicroStrategy raise funds to increase Bitcoin holdings?
Bond issuance strategy
To quickly raise funds, MicroStrategy issued bonds totaling about $5.7 billion (equivalent to 1/15 of Microsoft's debt). Almost all of these funds were used to increase Bitcoin holdings. MicroStrategy's debt is mainly issued in the form of convertible bonds, which are almost a guaranteed profit for creditors:
If the price of Bitcoin falls, creditors can convert their bonds into MicroStrategy stock and sell to recoup their investment.
If the price of Bitcoin rises, creditors can obtain higher returns through stock.
Even if the bonds mature, creditors have the right to choose to take back cash or convert into stock.
This flexible bond design allows MicroStrategy to successfully raise funds while reducing the risk of debt default.
Stock issuance strategy
As the price of Bitcoin continues to rise, MicroStrategy's stock price has also surged, with daily trading volume even surpassing tech giants like Nvidia. MicroStrategy has leveraged this advantage to raise funds through stock issuance. For example, last week, MicroStrategy raised $4.6 billion through a stock issuance and reinvested this money into the Bitcoin market, driving Bitcoin's price from $80K to break through $98K.
MicroStrategy's 'magic loop'
The operational logic of MicroStrategy can be summarized as follows:
Buy Bitcoin → Stock price rises → Borrow to buy more Bitcoin;
Bitcoin rises → Stock price further increases → Issue more stock for cash;
Buy Bitcoin again → Stock price continues to rise...
This operational model not only amplifies MicroStrategy's asset scale but also further solidifies its position in the Bitcoin market.
What is MicroStrategy's debt pressure?
Debt repayment node in 2027
MicroStrategy's debt structure is relatively robust, with its next debt repayment deadline being in February 2027, which means the company has more than two years to cope with potential market fluctuations. Even if Bitcoin's price drops significantly, MicroStrategy will not face liquidation risks because it primarily uses over-the-counter leverage, which does not involve forced liquidation mechanisms.
Debt interest pressure
The bond rates issued by MicroStrategy are extremely low; for example, the bond maturing in 2027 has a rate of 0%, while other debts have rates ranging between 0.625% and 2.25%. This low-cost financing method allows MicroStrategy to maintain low financial pressure even in extreme situations.
Potential threats to MicroStrategy
Although MicroStrategy's operating model has proven successful, its greatest soft threat comes from Bitcoin whales. If the whales in the market choose to sell off large amounts of Bitcoin, it could cause a short-term price impact. However, looking at the current market structure, most Bitcoin held by retail investors has already flowed into the hands of institutions or whales; as long as the whales exercise restraint, the upward momentum of Bitcoin is still worth looking forward to.
Summary: MicroStrategy's faith and future
As of now, MicroStrategy has achieved an unrealized profit of $15 billion through Bitcoin investments, demonstrating strong faith and exceptional execution. As more companies follow MicroStrategy's operational model, the market landscape for Bitcoin may undergo significant changes. According to current trends, $170K may just be a mid-term target for Bitcoin.
MicroStrategy's success is not only a top-tier capital operation but also an extreme faith in Bitcoin's future potential. For the Bitcoin market, this is a public strategy, not a conspiracy.