MSTR (MicroStrategy), rose from $69 at the beginning of the year to a peak of $543 last week, with a growth rate far exceeding that of Bitcoin! What impressed me is that while BTC was being pressed down due to the election, MSTR continued to soar. This made me rethink its investment logic: it is not just riding the BTC concept, but has its own gameplay and logic.
MSTR's core gameplay: issuing convertible bonds to buy BTC.
MSTR was originally engaged in BI (business intelligence reporting systems), but that has long become a sunset industry. Now its core gameplay is: raising funds through issuing convertible bonds, buying a large amount of BTC, and making it an important part of the company's assets.
1. What are convertible bonds?
Simply put, the company raises funds by issuing bonds, and investors can choose to take back principal and interest at maturity, or convert the bonds into company stock at an agreed price.
---If the stock price surges, investors will choose to convert their shares, leading to dilution.
---If the stock price does not rise, investors may choose to take back their principal and interest, and the company needs to pay a certain cost of funds.
2. MSTR's operational logic:
---Using the money raised through issuing convertible bonds to buy BTC.
---Through this method, MSTR's BTC holdings continue to increase, and the BTC value per share is also growing.
For example: According to early 2024 data, the BTC corresponding to every 100 shares increased from 0.091 to 0.107, and by November 16, it even rose to 0.12.
Understanding the relationship between the BTC increased through issuing convertible bonds and the diluted shares in MSTR's first three quarters of 2024 will be clearer with the following diagram.
---In the first three quarters of 2024, MSTR increased its BTC holdings from 189,000 to 252,000 (a growth of 33.3%) through convertible bonds, while the total number of shares was diluted by only 13.2%.
---The BTC corresponding to every 100 shares increased from 0.091 to 0.107, and the BTC holdings' rights gradually improved. Calculating based on the price at the beginning of the year: 100 shares of MSTR stock priced at ($69) $6900, 0.091 BTC ($42,000) priced at $3822, seems very unprofitable compared to the value of directly buying BTC (-45%). However, according to this growth model, by continuously issuing bonds, the amount of BTC held per share will increase.
3. Latest data:
On November 16, MSTR announced the acquisition of 51,780 BTC for $4.6 billion, bringing its total holdings to 331,200 BTC. According to this trend, the BTC value corresponding to every 100 shares is already close to 0.12. From a coin-based perspective, MSTR shareholders' BTC 'rights' are continuously increasing.
MSTR is the 'golden shovel' of BTC.
From a model perspective, MSTR's gameplay is similar to using Wall Street leverage to mine BTC:
---Continuously issuing bonds to buy BTC, increasing the BTC holdings per share through dilution;
---For investors, buying MSTR shares is equivalent to indirectly holding BTC, while also enjoying the leveraged gains brought by the rise in BTC prices.
It is believed that smart partners have already discovered that this gameplay is actually quite similar to Ponzi, using newly raised funds to subsidize the rights of old shareholders, continuing to raise funds in rounds like passing the flower while beating the drum.
4. Until when will this model be unsustainable?
---Increased fundraising difficulty: If the stock price does not rise, subsequent issuance of convertible bonds will become difficult, making the model hard to sustain.
---Excessive dilution: If the speed of issuing new shares exceeds the speed of increasing BTC, shareholders' rights may shrink.
---Homogenization of the model: More and more companies are beginning to imitate MSTR's model, and after intensified competition, its uniqueness may be lost.
MSTR's logic and future risks
Although MSTR's logic is somewhat like Ponzi, in the long run, hoarding BTC by large American capital has strategic significance. The total number of Bitcoins is only 21 million, while the U.S. national strategic reserves may occupy 3 million. For large capital, 'hoarding coins' is not just an investment behavior, but also a long-term strategic choice.
But currently, MSTR's risk is greater than the profit, so everyone should operate cautiously!
---If the BTC price adjusts, MSTR's stock price may suffer a larger decline due to its leverage effect;
---Whether it can maintain a high growth model in the future depends on fundraising capabilities and market competition.
My reflections and cognitive upgrades
In 2020, when MSTR first hoarded BTC, I remember Bitcoin rebounding from $3,000 to $5,000. I thought it was too expensive and didn’t buy, while MSTR bought a lot at $10,000. At that time, I thought they were foolish, but BTC surged to $20,000, and the fool turned out to be me. Missing out on MSTR made me realize that the operational logic and cognitive depth of American capital giants are worth studying seriously. Although MSTR's model is simple, it represents a strong belief in the long-term value of BTC. Missing out is not scary; what matters is learning from it and upgrading one’s cognition.
