Author | Mingdao & 0xTodd
Today let's talk about MicroStrategy's big strategy.
MicroStrategy has played the biggest golden egg in this cycle, with a paper profit exceeding 15 billion dollars in less than two years.
It’s not just a triple arbitrage of stocks, bonds, and coins; the key is to turn the MSTR stock into a real Bitcoin in traditional finance (recently, MSTR's trading volume has exceeded the total of Bitcoin ETFs), a true masterpiece of 'borrowing fake to repair real.'
Michael Saylor is neither from a Wall Street blue blood background nor is he a crypto OG; he truly is a chaotic fighter.
Here I briefly discuss several key parts of its trading structure design:
Stock/Coin relationship
These two have two key flywheels, one is to issue stock at a premium, purchase Bitcoin, push Bitcoin up, and enhance its net asset value and profit per share, which is linear leverage;
The second flywheel is financing to buy coins, accelerating profit growth, expanding valuation multiples (p/b, p/e becoming larger), stock prices jumping from linear to exponential leverage, and the market capitalization and stock prices rising more than Bitcoin's price itself.
Stock/Debt relationship
As MSTR's market value rises, it pushes into more indices, more trading derivatives emerge, trading volume increases, and lowers the financing costs of stocks and bonds; the structure of being able to convert between debt and equity further reduces the overall debt ratio.
MicroStrategy's convertible bonds are also a very sophisticated design (full of Buffett's wisdom).
Convertible bonds are basically medium to long-term bonds (5-year term, at least spanning 1 crypto cycle), most of which are zero-interest, with no principal repayment during the period. This ensures no partial repayments and interest payment pressures, further reducing the risk of debt default due to spiraling cryptocurrency price declines.
What's more impressive is that, unlike traditional convertible bonds, the choice of converting to stock or cash repayment lies with MicroStrategy, not the bondholders, fundamentally avoiding the default issue that arises when convertible bonds mature without repayment (worst case scenario, everything converts to stock). This financing premium capability is extraordinary.
Although many believe that issuing bonds increases the debt ratio, raising risk premiums, and is unfavorable for stock prices, this convertible bond essentially gives complete control to MicroStrategy's 'debt-equity' tool. It is very friendly to stock prices/shareholders.
Coin/Debt relationship
Debt is denominated in dollars, and from a coin-based perspective, purchasing power is infinitely approaching zero, and the initiative of convertible conditions lies with MicroStrategy; borrowing a 'debt' whose purchasing power trends towards zero to buy Bitcoin with infinitely large purchasing power, especially with a 0 default risk structure, in the long run, is a situation that will not lose.
In the crypto space and traditional finance for many years, I have indeed not seen such a master who can play triple arbitrage of stocks/bonds/coins so exquisitely.
Many people speculate whether MicroStrategy's outcome will be like the stock version of Luna. I think the overall risk structure of the two is not comparable, let alone the so-called death spiral.
As for when the flywheel stops turning and the music stops, the core lies in how long the high premium on stocks and single stock net coins can be maintained.
If market trends break expectations, and the supply of Bitcoin derivatives increases, and MicroStrategy's stock/coin premium shrinks to within 1.2, this financing will be hard to sustain. But MicroStrategy will still be a big winner.
MicroStrategy's long-term winning structural construction can truly rival Buffett's Berkshire Hathaway in the traditional financial world.
From the perspective of premium levels, MSTR reaching 1 trillion feels easier than Ethereum reaching 1 trillion.
A few final points. MicroStrategy currently has a 300% premium over Bitcoin, and for secondary market participants, if they don’t understand the variables, the risk is extremely high. The continuously growing scale means that the premium will only shrink, not expand; the ongoing financing capability is one of the variables that turns the premium from virtual to tangible.
Moreover, it’s best if everyone learns from MicroStrategy; if a hundred listed companies adopt its Bitcoin standard, raising the overall holding cost of Bitcoin will essentially help it reduce the premium bubble.
Can other assets (like eth, sol, meme) replicate the same strategy? The core of this strategy's establishment is having enough counterparties willing to accept similar convertible bond terms, and the reason they accept them is that there are more counterparties wishing to gain exposure to different risk combinations compared to Bitcoin.
Assets like eth/sol have added more economic models, technology, and market risks beyond liquidity, making them much harder to operate, but the potential returns are also high; it's uncertain if a degen version of MicroStrategy can be created.
I feel that the operators are already rubbing their hands together.
Excited for our beloved Bitcoin reaching 98,000 dollars!
Without a doubt, the contributors to the 40K-70K range were Bitcoin ETFs, while the contributors to the 70K-100K range undoubtedly belong to MicroStrategy.
Now many people equate MicroStrategy to the BTC version of Luna, which makes me a bit embarrassed because Bitcoin is my favorite cryptocurrency, while Luna happens to be my least favorite cryptocurrency.
I hope this post can help everyone better understand the relationship between MicroStrategy and Bitcoin.
First, a few conclusions at the beginning:
· MicroStrategy is not Luna; its safety cushion is much thicker.
· MicroStrategy increases its Bitcoin holdings through bonds and share sales.
· MicroStrategy's recent debt maturity date is in 2027, which is still more than 2 years away.
· The only soft threat to MicroStrategy is the Bitcoin whales.
MicroStrategy is not Luna; it has a much thicker safety cushion than Luna.
15 billion dollar grand strategy: where will MicroStrategy send Bitcoin?
MSTR net worth vs Bitcoin price
MicroStrategy was originally a software company with a lot of unrealized profits and didn’t want to invest in production anymore, so it began to shift from real to virtual, starting in 2020 to buy Bitcoin out of its own pocket.
Later, MicroStrategy used all the cash on its books to buy Bitcoin and began leveraging. Its method of leveraging is through over-the-counter leverage, determined to borrow money to buy Bitcoin by issuing corporate bonds.
The essential difference between it and Luna is that Luna and UST print each other; in essence, UST is meaningless unanchored printing, barely maintained by 20% false interest.
However, MicroStrategy is essentially a bottom dollar cost averaging + leverage, which is a standard long position using borrowed money, and it has bet in the right direction.
The popularity of Bitcoin far exceeds UST, and MicroStrategy's impact on Bitcoin is significantly lower than Luna's impact on UST. It's a simple truth; as they say, daily 2% is a Ponzi scheme, annual 2% is a bank; quantitative changes cause qualitative changes, and MicroStrategy is not the only factor determining Bitcoin, so MicroStrategy is definitely not Luna.
MicroStrategy increases its Bitcoin holdings through bonds and share sales.
To quickly raise funds, MicroStrategy has issued multiple debts totaling 5.7 billion dollars (for everyone's intuitive understanding, this is equivalent to 1/15 of Microsoft's debt).
And almost all this money is used to continuously increase Bitcoin holdings.
Everyone has used on-exchange leverage; you need to use Bitcoin as collateral, and the exchange (and other users in the exchange) will lend you money. But over-the-counter leverage is different.
All creditors worry about one thing: not repaying debts. Without collateral, why are people willing to lend money to MicroStrategy?
MicroStrategy's bond issuance is quite interesting; over the past few years, it has issued a type of convertible debt.
This convertible bond is quite interesting; let’s give an example:
Bondholders have the right to convert their bonds into MSTR shares, and this is divided into two stages:
1. Initial stage
· If the trading price of the bond drops >2%, creditors can exercise their rights to convert the bond into MSTR shares and sell them to recover their investment;
· If the trading price of the bond is normal or even rises, creditors can sell the bonds on the secondary market at any time to recover their investment.
2. Later stage
When the bonds are about to mature, the 2% rule no longer applies; bondholders can take their cash and walk away, or directly convert the bonds into MSTR shares.
Let’s analyze this; for creditors, it’s generally a risk-free business.
15 billion dollar grand strategy: where will MicroStrategy send Bitcoin?
If Bitcoin drops and MSTR has cash, creditors can get cash back.
If Bitcoin drops and MSTR has no money, creditors still have the final safety net, which is to convert into stocks to cash out;
If Bitcoin rises, MSTR will rise, and creditors who give up cash can still receive more stock returns.
In short, this is a trade with a high lower limit and a very high upper limit, thus MicroStrategy successfully raised money.
Fortunately, or rather, loyalty, MicroStrategy chose Bitcoin.
Bitcoin has not let it down.
2024 MicroStrategy stock price trend
With Bitcoin's rise, the Bitcoin that MicroStrategy accumulated early on has also risen significantly. According to the ancient and classic principle of stocks, the more assets a company has, the higher its market value should be.
Therefore, MicroStrategy's stock price has skyrocketed.
MicroStrategy's daily trading volume now exceeds this year's absolute superstar, Nvidia. Thus, MicroStrategy now has more options.
Now MicroStrategy is not just relying on issuing bonds, but can also directly issue new stocks for sale to raise funds.
Unlike many meme coins or Bitcoin developers who do not have minting authority, traditional companies can issue new stocks after complying with relevant processes.
Last week, Bitcoin's rise from just over 80K to the current 98K was inseparable from MicroStrategy's assistance. Indeed, MicroStrategy issued new stocks, selling them for 4.6 billion dollars.
PS: Companies with trading volumes exceeding Nvidia naturally have this liquidity.
Sometimes, you admire a company for earning great profits; you need to respect its great courage.
Unlike many crypto companies that sell off immediately, MicroStrategy maintains its usual high standards. MicroStrategy has reinvested all the money from selling stocks back into Bitcoin, pushing Bitcoin to 98K.
By this point, you should have understood MicroStrategy's magic:
Buy Bitcoin → Stock price rises → Borrow to buy more Bitcoin → Bitcoin rises → Stock price rises further → Borrow more → Buy more Bitcoin → Stock price continues to rise → Issue new stocks to cash out → Buy more Bitcoin → Stock price continues to rise……
Presented by the great magician MicroStrategy.
MicroStrategy's recent debt maturity date is in 2027; we have at least 3 years left.
As long as there are magicians, there will be times when the magic is revealed.
Many MSTR shorts believe we have reached the standard left side, even suspecting we are at the Luna moment.
However, is the reality really like that?
According to recent statistics, MicroStrategy's average cost for Bitcoin is 49,874 dollars, meaning it is now close to an unrealized profit of 100%, which is a super thick safety cushion.
Let’s assume the worst-case scenario, even if Bitcoin now drops 75% (which is nearly impossible) to 25,000, what then?
MicroStrategy borrows from the over-the-counter leverage, fundamentally lacking a liquidation mechanism. Angry creditors can, at most, convert their bonds into MSTR shares at the designated time and then angrily sell them in the market.
Even if MSTR is smashed to zero, it still does not need to be forced to sell these Bitcoins, as the earliest maturity date of the debt borrowed by MicroStrategy is actually in February 2027.
You should keep in mind, this is not 2025, nor 2026; it's Tom's 2027.
That is to say, we will have to wait until February 2027, and Bitcoin plummets; if no one still wants MicroStrategy's stock, then MicroStrategy will need to sell part of its Bitcoins only in February.
All in all, there are still more than 2 years left to continue playing the music and dance.
This is the magic of over-the-counter leverage.
You might ask, could MicroStrategy be forced by interest rates to sell Bitcoin?
The answer is still negative.
Due to MicroStrategy's convertible bonds, creditors are generally in a risk-free position, hence its interest is relatively low. For example, the bond maturing in February 2027 has an interest rate of 0%.
Creditors are purely interested in MSTR stock.
The interest on several debts it issued later is also at 0.625%, 0.825%, with only one being 2.25%, which has a minimal impact, so there's no need to worry about its interest.
15 billion dollar grand strategy: where will MicroStrategy send Bitcoin?
MicroStrategy's main bond interest, source: bitmex
MicroStrategy's only soft threat is Bitcoin whales.
At this point, MicroStrategy has already become mutually causal with Bitcoin.
More companies are preparing to start learning — the great operation of Bitcoin world’s David Copperfield (Saylor).
For example, a listed Bitcoin mining company, MARA, has just issued 1 billion dollars of convertible bonds specifically to buy at the bottom.
So I think shorts should be cautious; if more people start to emulate MicroStrategy, the momentum of Bitcoin will be like a runaway horse, after all, the upper area is all vacuum.
Therefore, MicroStrategy's biggest opponent now is only those ancient Bitcoin whales.
As many have predicted before, the Bitcoin in retail investors' hands has already been handed over, after all, there are simply too many opportunities. For example, the trend of memes, I just don't believe everyone is empty-handed.
Thus, there are only these whales in the market; as long as they remain inactive, it's hard to stop this momentum. If they are a bit luckier, the whales and MicroStrategy will form some subtle tacit understanding, enough to push Bitcoin towards a greater future.
This is also a significant difference between Bitcoin and Ethereum: Satoshi theoretically owns nearly 1 million early mined Bitcoins but has been silent to this day; while the Ethereum Foundation, for some reason, sometimes seems eager to sell 100 ETH to test liquidity.
As of today, MicroStrategy has already achieved an unrealized profit of 15 billion dollars, relying on loyalty and faith.
Since it is making money, it will increase its investment; it can no longer turn back, and more people will follow suit. According to the current momentum, 170K is the mid-term target for Bitcoin (not financial advice).
Of course, we are used to seeing conspiracy groups design conspiracies in memes every day, and occasionally witnessing a real top-tier grand strategy, we sincerely admire it.
