Article source: Uncle Jian
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 impresses me is that while BTC was being battered 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 play and logic.
MSTR's core approach: issuing convertible bonds to buy BTC
MSTR was originally in the BI (business intelligence reporting system) field, but that is already a sunset industry. Now its core approach is to raise funds by issuing convertible bonds, buying large amounts of BTC, and making it an important part of the company's assets.
1. What are convertible bonds?
In simple terms, a company raises funds by issuing bonds, and investors can choose to receive their 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 of shares.
--- If the stock price does not rise, and investors choose to take back their principal and interest, the company needs to pay a certain financial cost.
2. The operational logic of MSTR:
--- Using the funds raised from issuing convertible bonds to buy BTC.
--- In this way, MSTR's BTC holdings continue to increase, while the BTC value per share also rises.
For example: According to data from early 2024, 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 BTC bought through issuing convertible bonds and diluted shares will be clearer with the following diagram: MSTR's first three quarters before 2024, issuing convertible bonds to increase BTC holdings.
--- In the first three quarters of 2024, MSTR increased its BTC holdings from 189,000 to 252,000 (an increase of 33.3%), while the total number of shares was only diluted by 13.2%.
--- The BTC corresponding to every 100 shares increased from 0.091 to 0.107, gradually increasing BTC holding rights. 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, which seems quite unprofitable compared to directly buying BTC (-45%). However, based on this growth model, by continuously issuing bonds, the amount of BTC held per share will continue to increase.
3. Latest data:
On November 16, MSTR announced it had acquired 51,780 BTC for $4.6 billion, bringing its total holdings to 331,200 BTC. At 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 continually increasing.
MSTR is the 'golden shovel' for BTC
From a model perspective, MSTR's approach is similar to using Wall Street leverage to mine BTC:
--- Continuously issuing bonds to buy BTC, increasing the BTC holdings per share through dilution of shares;
--- For investors, buying MSTR shares is equivalent to indirectly holding BTC, while also enjoying leveraged returns from the stock price increase due to BTC rising.
By this point, I believe smart friends have already noticed that this method is quite similar to Ponzi schemes, using new funds raised to subsidize the rights of old shareholders, continuing the cycle of fundraising.
4. Until when will this model be unsustainable?
--- Increasing difficulty in fundraising: If the stock price does not rise, future issuance of convertible bonds will become difficult, making the model unsustainable.
--- Over-dilution: If the speed of share issuance exceeds the speed of BTC accumulation, shareholder rights may shrink.
--- Homogenization of the model: More and more companies are starting to imitate MSTR's model, and as competition intensifies, its uniqueness may be lost.
The logic and future risks of MSTR
Although MSTR's logic is somewhat similar to Ponzi, from a long-term perspective, hoarding BTC by large American capital has strategic significance. The total amount of Bitcoin is only 21 million, and the U.S. national strategic reserve may occupy 3 million. For large capital, 'hoarding coins' is not just an investment behavior, but a long-term strategic choice.
However, currently the risk of MSTR outweighs its returns, so everyone should operate cautiously!
--- If the BTC price retraces, MSTR's stock price may experience a larger decline due to its leverage effect;
--- Whether it can continue to maintain high growth in the future depends on its fundraising capacity and market competition environment.
Uncle's reflections and cognitive upgrades
In 2020, when MSTR first hoarded BTC, I remember Bitcoin rebounding from $3000 to $5000. I thought it was expensive and didn't buy, while MSTR bought in large quantities at $10,000. At that time, I thought they were foolish, but BTC shot up 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.
