Written by: Uncle Jian
MSTR (MicroStrategy) rose from $69 at the beginning of the year to a high of $543 last week, far exceeding Bitcoin's rise! Uncle is impressed that while BTC was being beaten down due to the election, MSTR was soaring. This made me rethink its investment logic: it is not just riding the BTC wave, but has its own play and logic.
MSTR's core strategy: issue convertible bonds to buy BTC
MSTR originally focused on BI (Business Intelligence Reporting Systems), but this has long been a sunset industry. Now its core strategy is: to raise funds through issuing convertible bonds, buy a large amount of BTC, and make it an important part of the company's assets.
1. What are convertible bonds?
In simple terms, the company raises funds by issuing bonds, and investors can choose to take back principal and interest at maturity or convert the bonds into the company's stock at an agreed price.
If the stock price rises significantly, investors will choose to convert their bonds into shares, leading to dilution.
If the stock price does not rise, investors can choose to take back their principal and interest, and the company needs to pay a certain capital cost.
2. MSTR's operational logic:
Use the money raised from issuing convertible bonds to buy BTC.
In this way, MSTR's BTC holdings continue to increase, while 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 had risen to 0.12.
Understanding the relationship between the BTC accumulated through convertible bonds and the diluted shares in MSTR's first three quarters of 2024 will be clearer when combined with the following diagram.
In the first three quarters of 2024, MSTR increased its BTC holdings from 189,000 to 252,000 through convertible bonds (an increase of 33.3%), while the total number of shares was only diluted by 13.2%.
The BTC corresponding to every 100 shares rose from 0.091 to 0.107, gradually increasing the BTC holdings per share. Calculating at the beginning of the year: 100 shares of MSTR stock priced at ($69) $6900, 0.091 BTC ($42,000) valued at $3822, seems quite unprofitable compared to directly buying BTC (-45%). However, according to this growth model, the number of BTC held per share will continue to increase through continuous bond issuance.
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. At this trend, the BTC value corresponding to every 100 shares is already close to 0.12. In terms of coin-based value, MSTR shareholders' BTC 'equity' is continuously increasing.
MSTR is the 'golden shovel' for BTC
From a model perspective, MSTR's strategy is similar to using Wall Street leverage to mine BTC:
Continuously issuing bonds to buy BTC, increasing the per-share BTC holdings through share dilution;
For investors, buying MSTR shares is equivalent to indirectly holding BTC, and they can also enjoy the leveraged gains from the rise in share price due to BTC.
At this point, I believe the clever friends have already noticed that this play is somewhat similar to a Ponzi scheme, using new raised funds to subsidize the rights of old shareholders, continuing to raise funds through rounds of 'passing the flower drum'.
4. Until when will this model continue to be sustainable?
Increased fundraising difficulty: If the stock price does not rise, subsequent convertible bond issuance will become difficult, making the model unsustainable.
Excessive dilution: If the speed of increasing shares exceeds the speed of BTC accumulation, shareholder equity may shrink.
Homogenization of the model: More and more companies are beginning to imitate MSTR's model, and as competition intensifies, its uniqueness may be lost.
MSTR's logic and future risks
While MSTR's logic is somewhat like a Ponzi scheme, from a long-term perspective, accumulating BTC by large American capital has strategic significance. The total number of Bitcoins is only 21 million, while the U.S. strategic reserves may occupy 3 million. For large capital, 'holding coins' is not only an investment behavior but also a long-term strategic choice.
But currently, MSTR's risk is greater than its reward, so everyone should operate cautiously!
If the BTC price declines, MSTR's stock price may suffer a larger drop due to its leverage effect;
Whether it can continue to maintain a high growth model in the future depends on its fundraising ability and the market competition environment.
Reflections and cognitive upgrades of Uncle
In 2020, when MSTR first accumulated BTC, Uncle remembers Bitcoin rebounding from $3000 to $5000. Uncle thought it was too expensive and did not buy, while MSTR bought a lot at $10,000. At that time, Uncle thought they were foolish, but BTC soared to $20,000, and the fool turned out to be Uncle himself. Missing out on MSTR made Uncle realize that the operational logic and cognitive depth of American capital tycoons 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 to learn from it and upgrade one's understanding.
