Written by: Luke, Mars Finance
As the price of Bitcoin soars again, the traditional financial market has welcomed an "uninvited guest" - MicroStrategy (MSTR). This company, which once focused on business intelligence software, has now transformed into a "super bull" in the Bitcoin market. As of November 2024, MicroStrategy holds approximately 331,200 Bitcoins with a market value of approximately US$3 billion.
MicroStrategy introduced huge amounts of capital from the traditional bond market into the Bitcoin ecosystem through innovative financial means such as issuing convertible bonds and additional shares. This strategy has triggered very different evaluations in the capital market: some call it "a miracle of modern financial innovation" that cleverly combines traditional and encrypted assets; others criticize it as "synonymous with high-leverage speculation" and believe that the risks are greatly magnified. Just as MSTR's stock price was soaring along with Bitcoin, Citron Research issued a short-selling statement, casting a shadow on this capital feast. Is MicroStrategy's radical strategy a beacon of industry transformation or an abyss of potential crisis? This article will analyze the full picture of this capital experiment.
Bitcoin's Rise and MicroStrategy's Super Bull Effect
As the Bitcoin market continues to soar, its heat wave quickly spread to US stocks, setting off an unprecedented capital carnival. Within a month, the share price of MicroStrategy (MSTR) soared by more than 200%, Marathon Digital (MARA) and Riot Platforms (RIOT) rose by 180% and 150% respectively, and Coinbase (COIN) also gained more than 120%. These stocks, with different Bitcoin exposure logics, jointly depict the prosperity of US Bitcoin concept stocks. As a "super bull" in the Bitcoin market, MicroStrategy is leading Bitcoin-related concept stocks through its unique strategy to transform Bitcoin's high volatility into wealth leverage in the capital market.
What makes MSTR special is that it is not a traditional technology company, nor is it a simple Bitcoin mining company or trading platform. Instead, it positions itself as a spokesperson for Bitcoin by directly holding Bitcoin on a large scale. Since 2020, MicroStrategy has embarked on a bold adventure: raising funds through issuing bonds, issuing additional shares, and other means to purchase Bitcoin with all its strength. Under the leadership of Chairman Michael Saylor, the company, which originally focused on business intelligence software, has become the world's largest public company with the largest holdings of Bitcoin, with a market value of more than $30 billion. This risky move by MSTR not only closely links its stock price to Bitcoin, but also attracts huge interest in its strategy from the traditional capital market.
This close correlation makes investors regard MSTR as a magnifying glass for Bitcoin prices. Compared with directly purchasing Bitcoin, investing in MSTR stocks can not only indirectly share the dividends of Bitcoin price increases, but also avoid the technical barriers and security risks brought by directly holding Bitcoin. This convenience, coupled with MSTR's unique capital operation model, has made it an important channel for investors to enter the crypto market. However, this amplification effect does not simply rely on market sentiment support. There is a complex financial logic behind it. It can even be said that it is the result of Michael Saylor's game with the traditional capital market using clever financial tools.
Premium issuance and capital flywheel: MSTR's wealth leverage
A major feature of MSTR's share price is its "premium" effect - the company's market value is much higher than the market value of the Bitcoin it holds.
The formation of this premium is inseparable from a strategy adopted by MSTR called "premium issuance". Taking advantage of the highly volatile stock price, MSTR issues stocks when the premium is high to raise funds, which are further used to purchase Bitcoin. This strategy forms a closed loop:
Bitcoin price rises → MSTR stock price rises → company raises funds at low interest rates → buys more Bitcoin → stock price continues to rise.
This mechanism, known as the "Reflexive Flywheel Effect," not only helps companies accumulate Bitcoin assets rapidly, but also deeply ties their stock price performance to the rise in Bitcoin, creating greater growth expectations for the market.
The core highlight of this flywheel effect is the amplifying effect of the "MSTR stock premium" on Bitcoin purchases. For example, when the NAV (net asset value) premium reaches 2.74, the funds obtained from each additional share of MSTR can purchase Bitcoin equivalent to 2.74 times its net value. This mechanism enables MSTR to not only quickly expand its Bitcoin holdings, but also maximize the "leverage effect", making the size of the balance sheet far exceed market expectations.
At the same time, the positive correlation between MSTR and Bitcoin prices (recently reaching a record high of 0.365) further strengthens this effect. The rapid growth of market capitalization has driven MSTR to be included in more US stock indexes, attracting a large amount of passive capital inflows. This index buying pressure has intensified the "net asset value premium" and formed a unique "index flywheel effect", which deeply binds cryptocurrencies to the volatility of traditional financial markets through active investment and passive flows in the capital market.
Not only that, MSTR also introduced funds from the traditional bond market by issuing convertible bonds (CBs), providing more flexible support for its Bitcoin purchase plan. Compared with ordinary bonds, convertible bonds provide investors with the dual choice of capital protection and stock price growth returns. For example, in February 2021, MSTR issued a total of US$1.05 billion in zero-interest convertible bonds, with an initial conversion price 50% higher than the stock price at the time of issuance. This low-cost financing method not only reduces the company's financial burden, but also attracts a large number of professional investors due to its high volatility. These funds were quickly converted into Bitcoin holdings, forming a unique "funding funnel" connecting traditional finance and the crypto market.
Behind all this, Michael Saylor’s financial acumen and fanatical belief in Bitcoin are inseparable. Under his driving force, MSTR continues to set market records through bond and stock financing, closely integrating traditional finance with the cryptocurrency market. However, this radical strategy has also caused widespread controversy. Recently, Citron Research questioned MSTR’s premium model, believing that this strategy that is highly dependent on the price of Bitcoin hides huge risks, and issued a short-selling announcement. This move resulted in a significant short-term decline in MSTR's share price.
Does Citron's short selling reveal the potential risks of MSTR, or does it just prove the unique value of its financial strategy? The more important question is, in an environment where Bitcoin prices fluctuate drastically, can MSTR's business model withstand the test of time and the market?
Shorting Citron: short-term speculation or value questioning?
Citron Research's shorting of MicroStrategy (MSTR) not only appears to be accurate, but also attracts special attention due to its special background. In 2020, when MicroStrategy first included Bitcoin as an important part of the company's balance sheet, Citron was one of the first institutions to recommend investors to buy MSTR. At that time, Citron stated loudly that MSTR provided a "smart alternative" that allowed investors to hold Bitcoin indirectly through a listed company without having to face the security and liquidity problems that come with holding Bitcoin directly. This bullish view was even regarded as one of Citron's rare positive comments on the crypto market at the time, and it also helped many investors capture the rich returns brought by MSTR's subsequent rounds of increases.
However, this time, Citron has turned the tables and become the "gravedigger" who openly questioned the MSTR model. From a certain perspective, it is precisely because Citron was once a staunch supporter of MSTR that its criticism of the current high premium model appears more authoritative. Citron believes that MSTR's valuation has deviated from the value of its actual Bitcoin holdings. As Bitcoin investment has become easier than ever (currently you can buy ETFs, COINs, HOODs, etc.), MSTR's trading volume has completely deviated from Bitcoin's fundamentals. The premium mainly comes from the market's blind optimism about its "flywheel effect", which is entirely dependent on the unilateral rise in Bitcoin prices. Once market sentiment reverses, this premium may evaporate quickly.
However, Citron's short selling may not be long-termism from a logical point of view, but more likely a short-term game against market sentiment. In previous operations, Citron has repeatedly used the market sentiment of highly volatile targets to issue short-selling reports to create panic, thereby quickly driving stock prices down. In the Nikola case in 2020, Citron caused a stock price crash by publicly questioning its business model, and then quickly closed its positions to make a profit. Similar operations have been repeated many times in cases such as Valeant. For MSTR, its highly volatile stock price and investors' sensitive emotions towards Bitcoin provide an excellent opportunity for Citron's short-term operations.
This strategy did have an impact on MSTR's stock price in the short term. On the day of Citron's announcement, MSTR's stock price plummeted by more than 20% during the day and closed down by more than 16%, which once caused the market to worry about its high premium model. As of the time of writing, MSTR's stock price has rebounded by 6%. In addition, Citron chose a rather pleasing strategy when shorting MicroStrategy this time: on the one hand, it clearly stated that it was bearish on MSTR's stock price, but on the other hand, it maintained a bullish stance on Bitcoin itself. This "two-sided attitude" is not accidental, but the result of careful design.
The investor group of Bitcoin is mainly retail investors, among whom there are many "hardcore bulls" who have extreme faith in Bitcoin. These retail investors have demonstrated strong counterattack capabilities in the GameStop incident, and through joint actions, they "squeezed" institutional investors and forced short sellers to cover their positions at a huge cost. Citron has obviously learned this lesson and chose to "draw a line" with Bitcoin itself when shorting MSTR to avoid directing the anger of retail investors towards itself. This strategy can be seen as a precise grasp of market sentiment: MSTR's premium model is closely related to the volatility of Bitcoin prices, but Citron's report cleverly points the finger at MSTR's financial structure and valuation issues, rather than challenging the long-term value of Bitcoin as an asset.
This pleasing strategy not only reduces the risks caused by "full bearishness", but also allows Citron to focus on the high volatility and high valuation of MSTR's stock price without damaging the sentiment of the Bitcoin market. However, whether this strategy can continue to work in the market remains to be seen.
Aerial Acrobatics: Will MSTR be the next Luna?
Citron's short-selling announcement has put MSTR at the forefront of public opinion. Unfortunately, Citron did not release a formal short-selling report, and there is no detailed logical deduction to refer to. So from the existing data alone, MSTR's flywheel is more like a capital magic: the left foot steps on the right foot, and it turns faster and faster. In a bull market, this flywheel is almost a perfect tool for spiraling up, but the higher it flies, the closer it is to collapse? In the final analysis, is MSTR safe?
This flywheel may seem complicated, but the logic is actually very simple: use money to buy Bitcoin, Bitcoin goes up, the stock price goes up, issue more stocks or bonds to get more money, and then continue to buy Bitcoin. So, Bitcoin goes up again, the stock price goes up again, and this cycle looks like a perpetual motion machine. However, unlike the nature of bubbles, MSTR's trump card is real gold and silver Bitcoin assets, rather than a false prosperity like Luna that relies on "printing money with the left hand and paying with the right hand". Luna's collapse stems from the fact that UST has no anchoring assets and is completely dependent on market confidence and 20% false returns. MSTR's Bitcoin is not only a hard asset, but also has a much higher market recognition than UST. This makes MSTR's flywheel more like a bold investment experiment in the bull market, rather than a simple accumulation of risks.
Secondly, its debt is loose and time-limited, and it will not be repaid until 2027, which means that there will be almost no repayment pressure in the next three years. Secondly, its financing costs are enviably low. For example, the interest on the debt due in 2027 is 0%, and the interest rates of the subsequent bonds are only 0.625% to 2.25%. More importantly, MSTR's Bitcoin holding cost is only $49,874 on average, and the current Bitcoin price has nearly doubled. This nearly 100% floating profit has formed a natural risk buffer. Even if the worst-case scenario occurs and the Bitcoin price plummets 75% to $25,000, MSTR still does not have to sell assets because its over-the-counter leverage has no liquidation mechanism. Creditors can only choose to convert bonds into MSTR shares at most, and it is impossible to directly force the company to sell coins to repay debts.
Now, the answer is no. At least in the next three years, MSTR's flywheel will have enough power to keep turning. But this does not mean there is no risk. MSTR's entire model is highly dependent on the price performance of Bitcoin. If the Bitcoin market is in a long-term downturn by 2027, the company may have to sell some Bitcoin to repay its debts, and things may be completely different.
The Diversified Ecosystem of US Bitcoin Concept Stocks
Coincidentally, MicroStrategy is not the only Bitcoin-related controversy in the U.S. stock market. Bitcoin's price fluctuations have never been an isolated phenomenon in the field of digital currency. It has penetrated into the stock market in various forms, giving rise to a group of concept stocks built around Bitcoin. Their positioning and logic of rise and fall are not exactly the same. MicroStrategy is only the most controversial one among them, and other types of Bitcoin concept stocks also play an important role.
From the perspective of investment logic, US Bitcoin concept stocks can be roughly divided into three categories: direct holding, mining and service.
First is MicroStrategy, a representative of direct holding. It directly purchases Bitcoin by issuing bonds and additional shares, and converts it into part of the company's balance sheet. This model allows its stock price to be directly affected by Bitcoin price fluctuations, and even amplifies the rise and fall. However, MSTR does not participate in Bitcoin mining or trading. It is more like a substitute for a "Bitcoin ETF", providing a convenient way for traditional investors who want to gain Bitcoin exposure. In addition to MicroStrategy, there are:
Galaxy Digital Holdings Ltd. (GLXY): Galaxy Digital is a financial services company focused on cryptocurrency investing, trading, and asset management. As of November 2024, the company has over $3 billion in assets under management.
Tesla Inc. (TSLA): Tesla Inc. holds approximately 10,500 Bitcoins with an initial total value of $336 million, representing 0.05% of the Bitcoin supply.
Mining stocks are completely different. Marathon Digital (MARA) and Riot Platforms (RIOT) are the two leading companies in this field. They build large-scale mining facilities and exchange computing power for Bitcoin income. In addition to being affected by Bitcoin prices, the rise and fall of mining stocks are also closely related to the operating costs of mining, especially electricity costs and equipment update cycles. Compared with MSTR, the risks of this type of stocks are more complicated because they not only have to face the fluctuations of Bitcoin prices, but also need to consider the multiple impacts of mining difficulty, energy price fluctuations and policy changes.
Marathon Digital Holdings (MARA): As one of the largest Bitcoin mining companies in the United States, Marathon Digital continues to expand the number of its mining machines and computing power. As of November 2024, the company's total computing power has reached 20 EH/s.
Riot Platforms (RIOT): Riot Platforms operates a large mining farm in Texas, focusing on Bitcoin mining. The company plans to increase its total computing power to 15 EH/s in the next two years.
Hut 8 Mining Corp (HUT): Canada-based Hut 8 Mining operates multiple mines in North America, focusing on Bitcoin and Ethereum mining. As of November 2024, the company holds more than 10,000 Bitcoins.
Bitfarms Ltd. (BITF): Bitfarms operates multiple mining farms in Canada and the United States, focusing on Bitcoin mining. The company plans to increase its total computing power to 8 EH/s by 2025.
Finally, there are service-oriented concept stocks, represented by Coinbase (COIN). Such companies do not directly hold Bitcoin or participate in mining, but profit from market activity by providing services such as trading, custody and payment. Coinbase's business model is closer to traditional finance, and its revenue mainly depends on trading volume and user activity. When the Bitcoin market is hot, such stocks usually show good resilience, but their volatility is relatively low and they are more affected by regulatory policies. In addition, there is Block Inc. (SQ): formerly Square, Block supports the purchase and sale of Bitcoin through its Cash App application and provides merchants with solutions for accepting Bitcoin payments.
Although these concept stocks are closely related to Bitcoin, their investment logic and risk characteristics are completely different. Direct holding stocks (such as MSTR) have the largest fluctuations due to their direct binding with Bitcoin prices; mining stocks make profits through mining, with the dual risks of energy costs and equipment investment; service companies have a stable source of income, but their growth is highly dependent on market heat.
Conclusion
The story of MicroStrategy is not only a successful experiment about how a company bet on Bitcoin, but also a microcosm of the integration of traditional finance and the emerging cryptocurrency market. As the global capital market continues to adapt to the wave of digital assets, MSTR has become a key bridge connecting the two fields with its unique financial strategy and high leverage model. However, the future of this model is still full of uncertainty: Will it become a replicable success story, or will it collapse due to market volatility and high risks? Regardless of the answer, the revelations and controversies brought by MicroStrategy provide valuable references for the mainstreaming of cryptocurrencies and add more possibilities to the future of the capital market.
