MicroStrategy has almost indiscriminately pushed Bitcoin to the center of traditional capital markets. Through the combination of equity dilution and zero-coupon bonds, the company has boldly taken action in the capital market, fully betting on Bitcoin's long-term value. But is this model a reckless gamble or a forward-looking vision of future asset patterns?
Written by: AY FundInsight
In 2023, MicroStrategy's story in the financial market resembles a labyrinthine adventure in capital, filled with risks and ambitious calculations. Its market value has soared from $1.8 billion at the beginning of the year to its current $111 billion, with intriguing driving forces and logical chains behind it. As a company with Bitcoin as its core strategy, MicroStrategy's actions are not only a bridge between traditional financial means and the cryptocurrency market but also have profound impacts on the future of the web3 industry. Aiying FundInsight will delve into MicroStrategy's strategic logic in Bitcoin-driven capital leverage and governance transformation, as well as the implications for the entire web3 financial ecology.
1. Bitcoin-Driven: From Marginal Asset to Core Strategy
MicroStrategy's growth path is undoubtedly inseparable from its aggressive layout in Bitcoin. At the beginning of 2023, the company's market value was far lower than its Bitcoin holdings, but through large-scale financing and a series of high-risk capital operations, its market value has now reached 3.55 times its Bitcoin holdings, equivalent to 5.9% of Bitcoin's market value.
Michael Saylor views Bitcoin as digital gold that transcends traditional currency and has built the core logic of the company's growth based on this. In the context of web3, MicroStrategy represents a new type of enterprise that uses digital assets as a foundational support, attempting to leverage the long-term appreciation expectations of Bitcoin to stimulate traditional capital markets' confidence in the future. As the price of Bitcoin rises, MicroStrategy's market value has also increased, and the capital market has placed great trust in its Bitcoin-driven premium.
However, the market's attitude towards this "digital gold standard" strategy is not entirely consistent. While some investors are full of confidence in MicroStrategy's future, with some even believing that its market value may surpass Bitcoin itself in the future, this idea has not been recognized by all rational investors. The decentralized spirit of web3 and the volatility of Bitcoin make such speculation full of uncertainty, after all, market confidence is not immutable.
2. Leveraged Capital Operations: The Innovative Combination of Dilution and Zero-Coupon Bonds
MicroStrategy's success lies not only in its choice of Bitcoin as a frontier asset but also in how it cleverly utilizes traditional capital market tools to obtain unprecedented capital leverage.
1. Equity Dilution: The Strategy of Value Dilution
Aiying FundInsight observes that MicroStrategy's financing methods mainly fall into two categories: equity dilution and zero-coupon bonds.
(1) The Process and Logic of Equity Dilution
MicroStrategy raises funds by issuing additional stocks, almost all of which are used to purchase Bitcoin.
This practice forms a unique "value dilution" logic, where the company dilutes the rights of existing shareholders, but due to the appreciation expectations of Bitcoin, this dilution is interpreted by the market as an increase in asset value, thereby pushing the company's stock price up.
Binding shareholder interests: After every stock issuance, the company immediately invests the funds into the purchase of Bitcoin. This immediate reinvestment closely ties shareholder interests to the long-term appreciation of Bitcoin. This kind of transmission effect in the financial market continuously enhances investors' confidence in the company's future. Many investors even view this as an indirect way to hold Bitcoin and are willing to pay a premium for this asset allocation model.
2. Zero-Coupon Convertible Bonds: The Game of Capital Returns
(1) The Strategy of Issuing Zero-Coupon Convertible Bonds:
Another financing method for MicroStrategy is through zero-coupon bonds. In a recent round of financing, MicroStrategy expanded the bond size from $175 million to $2.6 billion, with a coupon rate of zero.
Returns depend on stock price growth: Holders of these bonds do not receive traditional interest income; instead, their returns are closely tied to the future growth of MSTR's stock price, which can be converted into MicroStrategy's common stock at some point in the future. This means that the ultimate return for investors entirely depends on the rise in MicroStrategy's stock price, somewhat akin to employee stock options, and this is directly related to the value of the Bitcoin held by the company.
(2) Investors' High-Risk Bets:
Investors undertake high-risk bets. They choose to forgo regular interest income in exchange for faith in MicroStrategy's future growth—especially its close connection to Bitcoin.
The nature of long-term call options: These bonds essentially represent a type of long-term call option, where investors can only profit if MicroStrategy's stock price rises significantly. The potential sources of this profit primarily depend on the price trends of Bitcoin and the market's confidence in MicroStrategy's governance capabilities.
(3) The Chain Reaction in Capital Markets:
This financing method is not just about capital investment; it resembles a game with future markets. The chain reactions triggered by this game create a massive ripple effect, with every link pushing overall growth, filled with a delicate balance between high risks and high returns.
The synergistic effect with equity dilution: MicroStrategy's bond financing strategy complements its equity dilution, forming a unique capital operation model. This model resonates in the financial market, continuously driving funds into the company as the market's confidence in its future grows, with the core of this game being a firm belief in Bitcoin and an optimistic expectation for the future digital asset world.
3. Governance Change: From Saylor's Control to Institutional Governance
While capital expansion occurs, MicroStrategy's governance structure has also undergone significant changes. Michael Saylor's fall from absolute control of voting rights marks the company's transition from a "controlled company" to a more market-oriented, institutional governance model.
In the past, Saylor held the final say in company decision-making through control of Class B common stock, and MicroStrategy was thus classified as a "controlled company" by NASDAQ. However, with the large issuance of Class A common stock, the voting advantages of Class B shares were diluted, and Saylor's voting rights fell below 50%. As a result, the company was forced to establish an independent nomination committee, and the board's decision-making began to shift towards a more collective approach. This change not only means the company needs to respond to market scrutiny more transparently but may also bring more uncertainty to its future strategic decisions.
In the web3 ecosystem, the transformation of governance structures often represents a company's transition from the radical growth stage of a startup to a more stable and sustainable development period. The case of MicroStrategy reflects the typical characteristics of this transformation: rapid expansion under personal leadership and gradual normalization under institutional governance. For the web3 industry, which pursues decentralization, this shift is also an inevitable trend of internal checks and balances.
4. Deep Thoughts on Aiying FundInsight
MicroStrategy's capital operation path has sparked deep reflection from Aiying FundInsight. Can such a strategy be sustained, or how will it change the entire web3 financial ecology? Under Michael Saylor's leadership, MicroStrategy has boldly pushed Bitcoin to the center of traditional capital markets without hesitation. Through the combination of equity dilution and zero-coupon bonds, the company has made daring moves in the capital market, fully betting on Bitcoin's long-term value. But is this model a reckless gamble or a forward-looking vision of future asset patterns?
From a deeper perspective, MicroStrategy has transformed itself into a structured tool for indirectly holding Bitcoin by leveraging shareholders' and bondholders' faith in Bitcoin. It not only relies on the market's perception of Bitcoin but also opens up a new path in finance by linking traditional financing tools with digital assets. However, this path is fraught with risks and uncertainties, especially in the case of severe fluctuations in Bitcoin prices, where the leverage risk faced by MicroStrategy will sharply magnify.
What is even more thought-provoking is the demonstrative effect of this capital operation method on the overall web3 industry. Many companies may be inspired to emulate MicroStrategy by structuring their holdings and financing around crypto assets as the main asset. However, without hedging methods and diversified risk management, such strategies could likely lead to systemic market risks. Although MicroStrategy's debt and equity dilution methods seem successful, the underlying logic is based on the continuous rise in Bitcoin prices. Once this premise wavers, the entire foundation of financing and growth will also be impacted.
Aiying FundInsight believes that the case of MicroStrategy is both a profound experiment in new capital operations and a high-risk market gamble. It demonstrates how web3 companies can leverage traditional financial markets to expand their digital asset holdings while also revealing the significant risks hidden in this strategy. If the market ecology of crypto assets can continue to optimize in the future, MicroStrategy may become a pioneer of a new business model; however, if market sentiment reverses, such high-leverage operations may become a significant risk point. Aiying FundInsight will analyze MicroStrategy's debt structure and potential risks in the next issue, so stay tuned.
