Rachel, Golden Finance
In this bull market, MicroStrategy has undoubtedly become a star company because of its crazy purchase of Bitcoin.
MicroStrategy's current behavior of purchasing Bitcoin can be simply summarized as: issuing convertible corporate bonds to raise funds from the public, and then using the raised funds to purchase Bitcoin as company reserves. Because Bitcoin continues to rise, MicroStrategy's valuation has increased and its stock price has risen.
This strategy is a win-win situation for both the company and the creditors who purchase convertible bonds. The company's valuation has achieved a spiral upward, and the creditors can either protect their principal and earn interest, or enjoy the rise in stock prices after the bonds are converted into MicroStrategy's stocks.
The risk is then transferred to those investors who later bought MicroStrategy stocks. As long as Bitcoin keeps rising, this strategy of issuing bonds to buy Bitcoin can continue to be executed. MicroStrategy, which started buying Bitcoin in 2020, has seen its stock price increase more than twenty-fold.
Seeing the substantial profits behind MicroStrategy's issuance of bonds to buy Bitcoin, several companies have followed suit. Most of these companies are not primarily in the blockchain space, but have benefited from buying Bitcoin, leading to their stock prices rising alongside Bitcoin's price.
MicroStrategy's stock price—an amplifier for Bitcoin prices
In 2020, MicroStrategy began purchasing Bitcoin and was the first American publicly listed company to integrate Bitcoin as a reserve asset.
The first acquisition announced by MicroStrategy included approximately 21,000 BTC, valued at over $250 million, when the price of Bitcoin was below $10,000.
Initially, it used cash to purchase Bitcoin, but later shifted to raising funds through issuing and selling stocks and convertible bonds.
MicroStrategy currently holds more than 380,000 Bitcoins, with its latest purchase being at an average price of $97,862 per Bitcoin, totaling approximately $5.4 billion.
MicroStrategy was originally a smart software company, but after buying Bitcoin, its public image transformed into that of a 'shadow company' for Bitcoin. From October 2000 to September 2020, MicroStrategy's stock price remained below $20 per share. However, as it continuously purchased Bitcoin, the fluctuations in its stock price began to detach from its core business, instead becoming a Bitcoin concept stock.
Thanks to its strategy of actively buying Bitcoin over the years, MicroStrategy's stock price has skyrocketed from $20 in 2020 to more than twenty times that today. MicroStrategy's stock price has become an amplifier for Bitcoin prices, and its growth in recent years has far outpaced that of Bitcoin.
MicroStrategy Model Breakdown
In earlier years, MicroStrategy directly purchased Bitcoin with cash, but now it issues convertible bonds to buy Bitcoin. The process and principles of MicroStrategy issuing bonds to buy Bitcoin and then selling stocks are as follows:
I. Issuing convertible bonds: MicroStrategy chooses to privately issue convertible senior notes to qualified institutional buyers to raise funds.
II. Attracting investors to purchase convertible bonds: Despite MicroStrategy's convertible bonds having a low nominal interest rate and a high conversion price, they remain attractive to some investors for the following reasons:
a. Low risk: Even if not converted at maturity, investors can still get back their principal, unless MicroStrategy goes bankrupt.
b. Option value: Investors have the option to convert within a six-year period, and once the MicroStrategy stock price rises above the agreed price, they can execute the conversion; from the options market perspective, the cost is relatively low.
III. Using funds to purchase Bitcoin: MicroStrategy will use the funds raised through issuing convertible bonds to purchase Bitcoin, continuously increasing its Bitcoin holdings.
IV. Selling stocks: When Bitcoin prices drop, MicroStrategy may sell stocks to respond. On one hand, stock sales can provide the company with additional funds to meet debt repayments or other financial needs to maintain financial stability; on the other hand, by adjusting the ratio of stock and Bitcoin holdings, it can balance asset allocation and reduce risks stemming from Bitcoin price volatility.
V. Synergy and Impact of Overall Strategy:
a. Stock-coin relationship: Issuing stocks at a premium to purchase Bitcoin drives up Bitcoin prices, thereby increasing the company's net asset value per share and profits, creating a positive cycle. Furthermore, financing to buy Bitcoin accelerates profit growth, expands valuation multiples, and causes stock prices to shift from linear growth to exponential jumps, with market value and stock prices rising more than Bitcoin's price increase itself.
b. Stock-bond relationship: As MicroStrategy's market value rises, it enters more indices, increases trading derivatives, raises trading volumes, and lowers the financing costs of stocks and bonds. Its convertible bonds are uniquely designed, with options for stock conversion and cash repayment resting with MicroStrategy, avoiding default issues from being unable to repay upon maturity, essentially becoming a 'debt and equity' tool that is friendly to stock prices and shareholders.
c. Coin-bond relationship: Debt is denominated in USD, while purchasing power in a coin-based position tends toward zero; however, the convertible conditions are controlled by MicroStrategy. Using this special 'debt' to buy Bitcoin allows the company to potentially gain substantial returns as long as Bitcoin prices rise, with manageable risks in the long term.
Companies learning from MicroStrategy
Simply buying Bitcoin can drive stock prices up twenty-fold, making countless companies envious, prompting them to imitate MicroStrategy.
For these companies, the most direct impact in the short term is that although the company's debt increases, it also gains a cash inflow, which helps alleviate the company's financial pressure. As Bitcoin rises, the value of Bitcoin assets held by the company increases, and for publicly listed companies, their stocks will also turn into crypto concept stocks, climbing with the increase in the crypto market.
Especially in the second half of this year, publicly listed companies have begun a Bitcoin buying spree. Here are some companies that have made Bitcoin a reserve asset:
Marathon Digital:
Like MicroStrategy, this company, regarded as the world's largest Bitcoin mining enterprise, also issued convertible bonds to purchase Bitcoin.
According to HODL15 Capital statistics, as of November 15, 2024, Marathon Digital ranks first among publicly listed Bitcoin mining companies with 27,562 Bitcoins held.
In November 2024, it issued $1 billion in convertible bonds, planning to use approximately $199 million of these proceeds to repurchase $212 million of 2026 convertible bonds. The remaining funds will be used for Bitcoin acquisitions and general corporate purposes, including potential strategic acquisitions, asset expansion, and debt repayment.
Its earliest purchase was in July 2024, when the company spent $120 million to buy 2,282 Bitcoins, and then began selling $250 million of private bonds to repurchase Bitcoin.
Nilam Resources:
On March 25, 2024, Nilam Resources, a gold mining company based in South America, announced plans to acquire approximately 24,800 Bitcoins valued at around $1.7 billion through the issuance of priority Series C stock. The primary purpose of the transaction is to acquire a special purpose entity, MindWave, based in Mauritius, which holds a large amount of digital assets, including Bitcoin. These assets will be used as collateral for further investments in high-yield projects. The acquisition was confirmed by a letter of intent (LOI) signed by Nilam and Xyberdata Ltd., and it is planned to be completed through equity exchange. Nilam believes this move will help it explore the digital asset market and expand its financing channels.
SOS Ltd.:
This is a Chinese company listed on the New York Stock Exchange, focusing on artificial intelligence and blockchain as core technologies. On November 27, 2024, it announced that its board had approved a plan to invest $50 million in purchasing Bitcoin (BTC) to strengthen its blockchain industry layout.
Previously, the company had laid out its plans in the crypto mining industry for many years. As early as 2020, SOS announced it spent approximately $20 million to procure 14,238 Bitcoin mining machines and 1,408 Ethereum mining machines. In 2023, SOS announced it launched over 5,000 of its own mining machines at its Texas hosting center and has signed a hosting agreement with Bitmain, with a total of 6,000 machines hosted, set to last until August 20, 2025.
To maximize investment returns and minimize market volatility risks, SOS plans to adopt a variety of quantitative trading strategies, including investment, trading, and arbitrage strategies, to help the company achieve stable returns in the current market environment while further optimizing its investment portfolio over time.
Metaplanet:
This is an investment company based in Japan, primarily focused on investing in high-tech and innovative fields, especially in artificial intelligence, blockchain technology, and financial technology. It has been listed and announced on November 28, 2024, plans to raise up to 9.5 billion yen (approximately $62 million) through new stock subscription rights to accelerate Bitcoin accumulation.
Earlier this month, it also announced plans to issue ordinary bonds totaling 1.75 billion yen (approximately $11.3 million), with an annual interest rate of 0.36% and a maturity of one year. The proceeds will be used to purchase Bitcoin.
Since April 2024, it has been continuously accumulating Bitcoin, using it as its strategic financial reserve asset. Because of this behavior, it is referred to as 'Asia's MicroStrategy.' As it continues to buy Bitcoin, its stock price, like MicroStrategy's, has risen along with Bitcoin prices.
Boya Interactive:
The company is a developer and operator in the board game industry, established in 2004 and listed on the Hong Kong Stock Exchange in 2013. Since 2023, it has started purchasing cryptocurrencies, including Bitcoin, Ethereum, and USDT. On November 12, 2024, when the Bitcoin price surpassed $90,000, Boya Interactive voluntarily disclosed its holdings: the company holds 2,641 Bitcoins and 15,445 Ethereum, with total costs of approximately $143 million and $42.5781 million, respectively, averaging about $54,000 per Bitcoin and $2,756 per Ethereum. The unrealized profit is nearly $100 million.
Tesla:
Since 2021, Tesla has continuously purchased Bitcoin and has also sold at opportune times. According to Arkham data, Tesla's Bitcoin holdings amount to 11,509 Bitcoins.
SpaceX:
Reportedly, the company led by Elon Musk also holds Bitcoin, but the exact amount has not been disclosed. It is estimated that SpaceX holds several thousand BTC in its corporate treasury.
Block.one:
The parent company of EOS has been reported to hold as many as 140,000 Bitcoins, but the company's actual Bitcoin holdings and related investment details have not been fully disclosed.
Block Inc.:
An American payment company, whose co-founder Jack Dorsey announced that starting in April 2024, Block will allocate 10% of the gross profit from Bitcoin-related products each month to purchase Bitcoin. It began purchasing Bitcoin in October 2020. According to data from buybitcoinworldwide, as of September 18, 2024, Block, Inc. holds 8,211 Bitcoins.
Nexon Co Ltd:
A Korean company specializing in video game creation. It began purchasing Bitcoin in April 2021, reportedly spending about $100 million to acquire 1,717 Bitcoins.
Lan Kuo Interactive:
The Hong Kong-listed gaming company, Lan Kuo Interactive, has repeatedly purchased cryptocurrencies since 2023. From June 30 to July 7, 2023, it purchased 19.3808 Bitcoins, totaling approximately $590,000. Earlier, from June 6 to June 15, it spent $650,000 to buy 24.8932 Bitcoins. On September 13, 2024, during the previous 12 months, the company purchased a total of 93.85 Bitcoins, spending $2.7 million. In November 2024, Lan Kuo Interactive announced the launch of a $15 million Bitcoin network ecosystem investment management fund, BTC NEXT.
Lan Kuo Interactive is actively laying out Web3, largely due to the relationship with its founder, Wang Feng.
Ying Universe:
This is the parent company of the Inked app, which is publicly listed in Hong Kong. In March 2024, it announced that its board approved a budget of $100 million for the company to purchase cryptocurrencies on any regulated and licensed trading platform over the next five years.
Out of this $100 million, $60 million will be used to purchase Bitcoin, approximately $20 million to purchase Ethereum, and about $10 million each will be used to purchase USDT and USD.
Guofu Innovation:
The Hong Kong-listed financial company Guofu Innovation announced in August 2024 that it had purchased a total of 36 million Hong Kong dollars worth of Bitcoin between March and August.
