Author: 0xjs, Jinse Finance
Bitcoin breaks through $80,000! Bitcoin breaks through $90,000! Bitcoin breaks through $95,000! Bitcoin breaks through $99,000!
Clearly, Bitcoin is bound to break through the $100,000 mark soon.
Common sense tells us that the direct reason for a significant price increase is that someone is buying a large amount with real money; after all, 'Money Talks.'
In this round of the crypto bull market, there has been significant differentiation among crypto tokens, with the two most prominent sectors being Bitcoin and Solana. Solana's rise mainly comes from crypto players flocking to memes, while Bitcoin's rise primarily comes from buying funds from the US Bitcoin ETF and some listed companies, especially MicroStrategy. This article mainly focuses on MicroStrategy.
On November 21, a reporter from Jinse Finance spent an evening browsing the documents submitted by MicroStrategy to the SEC since 2021, deeply analyzing MicroStrategy's bitcoin purchase behavior and funding sources. The conclusion drawn is that MicroStrategy is an enhanced version of 'Grayscale + Luna.'
First, let's look at MicroStrategy's overall situation, then break down the funding sources for MicroStrategy's bitcoin purchases, and finally compare Grayscale and Luna. Below.
MicroStrategy is unafraid of bull and bear markets: spending over $16 billion to firmly buy bitcoins.
Since implementing its bitcoin reserve strategy in September 2020, MicroStrategy has steadfastly executed this strategy across cycles without fear of bull and bear markets, such as buying bitcoins in April and November 2021 at prices exceeding $59,000.
MicroStrategy continues to buy BTC persistently.
A reporter from Jinse Finance reported that as of November 22, 2024, MicroStrategy has accumulated expenditures of $16.58 billion to buy bitcoins, currently holding 331,000 bitcoins, with a market value of nearly $33 billion.
Since the successful issuance of the Bitcoin ETF in January 2024, the Bitcoin ETF has managed over 1.24 million bitcoins, with total assets exceeding $120 billion and a net capital inflow of approximately $30.3 billion. The Bitcoin ETF is an investment target for many investors, not just from a single investor.
It appears that MicroStrategy may be the single entity that has spent the most on buying bitcoins.
So the question arises, where does all the funding for MicroStrategy's bitcoin purchases come from?
The reporter 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 them, convertible senior notes are aimed at qualified institutional investors, while at-the-market equity offerings directly target the secondary market.
Convertible Senior Notes: $7.26 billion from qualified institutional investors.
Below are the notes issued by MicroStrategy since 2020. Except for the $500 million senior secured debt issued in June 2021, the rest are convertible senior notes.
Among them, the $3 billion convertible notes newly issued by MicroStrategy on November 21, 2024, can be used at any time to buy bitcoins. Perhaps in the next day or two, when MicroStrategy uses this $3 billion to buy bitcoins, it will be the moment when Bitcoin breaks $100,000.
Understanding what convertible senior notes are, you will find it is a great financial instrument.
所谓 convertible senior notes 是一种特殊的债务证券，其中包含可将票据转换为预定数量的发行人股票的期权。如果股票涨起来可以把它转成股票，如果股价低就按照债权还本付息。而且优先可转换票据优先于同一组织发行的所有其他债务证券，可以得到优先补偿。因此它是一种上有高收益、下有保底的债券。"
Importantly, convertible senior notes generally come with mandatory redemption clauses. After the prohibited redemption period specified in the terms has passed or upon triggering the early redemption clause, the issuer may initiate mandatory redemption. Before the specified redemption date, investors need to convert the convertible notes into company stock; otherwise, the issuer has the right to forcibly redeem the convertible notes at the bond's face value plus accrued interest. In most cases, investors will voluntarily convert into stocks.
Taking MicroStrategy's already redeemed 2025 Convertible Notes as an example, the maturity date for the 2025 Convertible Notes is December 15, 2025. However, MicroStrategy announced on June 13, 2024, that holders of the 2025 Convertible Notes could choose to convert their notes into 2.5126 shares of MicroStrategy Class A common stock per $1,000 principal at an applicable conversion rate (reflecting a conversion price of $397.99 per share) before 5:00 PM New York time on July 11, 2024. Otherwise, MicroStrategy will forcibly redeem all outstanding notes on July 15 at a redemption 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, and the $1,300 price was the pre-split price), clearly creditors would choose to convert their debt into equity. After receiving the stocks, creditors completed arbitrage.
Why do institutional investors eagerly purchase MicroStrategy's convertible notes? Because their risks are minimal, essentially guaranteeing a profit, and the convertible senior notes have preferential claims. Currently, MicroStrategy's total liabilities from convertible notes amount to $7.26 billion, while the market value of the bitcoins held by MicroStrategy is nearly $33 billion; even if bitcoins fall by 75%, the creditors of MicroStrategy's convertible notes will not lose money.
It can be said that the most important motive behind convertible notes is that the issuer allows investors to voluntarily choose to convert their debt into equity, thereby releasing the issuer from having to pay cash to repay the debt.
At-the-market equity offerings: nearly $10 billion in the secondary market
Below are the market stock issuance data for MicroStrategy since 2020. Over the past four years, MicroStrategy has directly raised a total of $9.8235 billion in the secondary market through the issuance of new shares, and all of this funding has been used by MicroStrategy to buy bitcoins.
The so-called at-the-market equity offering refers to the follow-up stock issuance conducted by a public company after its IPO to raise funds. In ATM offerings, the listed company sells newly issued stock to the secondary trading market gradually at the market price through designated brokers over a period of time. Brokers sell the issuing company's stock in the open market to obtain cash proceeds, which are then delivered 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. According to this agreement, MicroStrategy may issue and sell its Class A common stock through sales agents from time to time, with a maximum issuance of $2 billion. According to the 8-K document submitted by MicroStrategy to the SEC on November 11, 2024, MicroStrategy issued a total of 7,854,647 new shares, raising $2.03 billion, all of which were used to purchase 27,200 bitcoins.
On October 30, 2024, MicroStrategy announced the 21/21 plan, stating that it plans to raise $42 billion in capital over the coming years, 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 for a market issuance of $21 billion in MicroStrategy stock. The 8-K document submitted by MicroStrategy to the SEC on November 18, 2024, shows that between November 11 and 17, MicroStrategy sold 13,594,000 shares, raising approximately $4.6 billion, all of which were 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 enhanced version of 'Grayscale + Luna'?
Now that we are familiar with MicroStrategy's 'convertible notes' and 'at-the-market equity offerings' golden fingers, let's recall whether they resemble Grayscale and Luna from the last bull market, but in a more enhanced version.
Grayscale Vs. Convertible Notes:
Looking back at Grayscale's operational mechanism before it was converted into an ETF, Grayscale trust stocks were only issued to qualified investors. Investors purchased GBTC stocks with over-the-counter cash (the underlying assets of the Grayscale trust must be corresponding bitcoins) or exchanged physical bitcoins for GBTC stocks, completing arbitrage after a 6-month lock-up. Meanwhile, GBTC stocks are isolated from the underlying bitcoin assets, and investors cannot redeem them.
MicroStrategy's convertible notes are also targeted at qualified investors, who purchase the notes with over-the-counter cash and convert them into MicroStrategy stocks upon mandatory redemption to complete arbitrage. The convertible notes are also isolated from MicroStrategy's bitcoins.
During the Bitcoin bull market in 2020 and 2021, the premium of GBTC attracted a large amount of arbitrage funds, and GBTC once 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 in funding from qualified institutional investors through convertible notes. MicroStrategy's 21/21 plan is also set to issue more bonds.
The difference is that MicroStrategy's convertible notes have a long maturity, with the nearest maturity date being in 2027, which is sufficient to last until the next cycle. If needed, MicroStrategy can entirely force redeem convertible notes, allowing investors to convert them into nearly zero-cost newly issued MicroStrategy stocks without needing MicroStrategy to repay cash. Even if it waits until the maturity date to redeem, MicroStrategy can issue new convertible notes to replace the old ones, just as MicroStrategy used the 2024 Convertible Notes issued on September 20, 2024, to cash redeem the 2028 Secured Notes. Clearly, MicroStrategy's convertible notes are more robust.
Luna Vs. At-the-market equity offerings:
In the Luna case, burning $1 of LUNA can mint $1 of algorithmic stablecoin UST. As long as the price of LUNA rises, more UST can be minted, and with more UST, more bitcoins can be purchased as reserves, stabilizing 1 UST = 1 USDT. Luna directly targets ordinary investors without any permissions.
MicroStrategy's at-the-market equity offerings are very similar and also directly target ordinary investors in the secondary market. The higher MicroStrategy's stock price, the more dollars it can obtain through at-the-market equity offerings, and more dollars can purchase more bitcoins. 'Step on the left foot and the right foot' rises all the way. In January 2024, after the Bitcoin ETF was established in the bull market, MicroStrategy's net asset premium (market price per share / corresponding bitcoin value -1) rose to 2.7. Currently, MicroStrategy holds a total of 331,200 bitcoins, valued at approximately $32.84 billion, while MicroStrategy's total market value once exceeded $100 billion.
Luna and UST can be minted in both directions. If UST decouples, arbitrageurs can buy UST at a discount to mint LUNA at 1 UST = 1 USDT, resulting in a 'death spiral' causing LUNA to crash. In fact, if the Luna Foundation (LFG) had bought more bitcoins earlier in the upcycle (they only bought $1.5 billion worth of bitcoins), and if UST could temporarily mint LUNA in a one-way manner, Luna likely would not have crashed.
MicroStrategy takes it a step further; its at-the-market equity offerings are one-way and will not fall into a death spiral, and they are almost at zero cost. MicroStrategy is clearly safer than Luna. Even during the bear market in 2022, MicroStrategy's net asset premium was at least 60%.
Source: mstr-tracker
As long as someone is willing to buy MicroStrategy stocks issued at market price, the more bitcoins MicroStrategy buys during its NAV high premium period, the thicker MicroStrategy's safety cushion becomes. In the extreme case, MicroStrategy's market cap could equal its bitcoin market value, and MicroStrategy itself would face no risk because the risk has already been transferred to stock investors.
In summary, can we say that MicroStrategy is an enhanced version of 'Grayscale + Luna'?
Conclusion: Triple Maximism
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 nations to respond to the Bitcoin revolution, introducing the triple maximism strategy. For companies, it means buying bitcoins through three avenues: cash flow, issuing stocks when the stock price is overvalued, and issuing debt when interest rates are low.
He said it, and he did it.
MicroStrategy has accumulated 331,200 bitcoins.
