Rachel, Golden Finance
In this bull market, MicroStrategy has undoubtedly become the star company due to its aggressive Bitcoin purchases.
The current behavior of MicroStrategy purchasing Bitcoin can be simply summarized as: issuing convertible corporate bonds to raise funds from the public, then using the raised funds to purchase Bitcoin as company reserves. Due to the continuous rise in Bitcoin prices, MicroStrategy's company valuation increases and stock prices rise.
This strategy is a win-win for both the company and the bondholders purchasing convertible bonds. The company's valuation achieved a spiral ascent, while bondholders either break even and earn interest, or convert bonds to MicroStrategy stock and enjoy the rise in stock prices.
The risks have shifted to those shareholders who later purchased MicroStrategy stock. As long as Bitcoin keeps rising, this bond issuance strategy to buy Bitcoin can continue to be executed. Since starting to buy Bitcoin in 2020, MicroStrategy's stock price has also increased more than twenty-fold.
It is precisely the huge profits behind MicroStrategy's bond issuance to buy Bitcoin that have led many companies to follow suit. Most of these companies do not have their main business in blockchain, but have benefited from buying Bitcoin, causing their stock prices to rise alongside Bitcoin prices.
MicroStrategy's stock price - an amplifier of Bitcoin prices
In 2020, MicroStrategy began purchasing Bitcoin, becoming the first publicly listed U.S. company to integrate Bitcoin as a reserve asset.
MicroStrategy announced its first acquisition of approximately 21,000 BTC, worth over $250 million, at a time when Bitcoin prices were below $10,000.
Initially, it adopted a cash purchase method, later shifting to raising funds through issuing and selling stock and convertible bonds.
MicroStrategy's current Bitcoin holdings have exceeded 380,000 Bitcoins, with the most recent purchase being at an average price of $97,862 per Bitcoin, totaling approximately $5.4 billion.
MicroStrategy originally was an intelligent software company, but after buying Bitcoin, its public image transformed into that of a 'shadow company' for Bitcoin. From October 2000 to September 2020, MicroStrategy's stock price remained below $20 per share. However, as it continuously bought Bitcoin, its stock price fluctuations began to diverge from its core business, becoming a Bitcoin concept stock instead.
Thanks to the strategy of actively buying Bitcoin over the years, MicroStrategy's stock price has skyrocketed from $20 in 2020 to more than 20 times that now. MicroStrategy's stock price has become an amplifier for Bitcoin prices, with its growth in recent years far exceeding that of Bitcoin itself.
MicroStrategy model breakdown
In earlier years, MicroStrategy directly purchased Bitcoin with cash, but now it issues convertible bonds to buy Bitcoin. The process and principles of MicroStrategy issuing bonds to buy Bitcoin and then selling stocks are as follows:
1. Issuing convertible bonds: MicroStrategy chose to privately place convertible preferred notes to qualified institutional buyers to raise funds.
2. Attracting investors to buy convertible bonds: Although MicroStrategy's convertible bonds have low coupon rates and high conversion prices, they still attract certain investors for the following reasons:
a. Low risk: Even if not converted at maturity, investors can get back their principal unless MicroStrategy goes bankrupt.
b. Option value: Investors have the option to convert shares over a six-year period, and they can execute the conversion once MicroStrategy's stock price rises above the agreed price. From the perspective of the options market, this cost is relatively low.
3. Using funds to purchase Bitcoin: MicroStrategy will use the funds raised through issuing convertible bonds to purchase Bitcoin, continuously increasing its Bitcoin holdings.
4. Selling stock: When Bitcoin prices drop, MicroStrategy may respond by selling stock. On one hand, selling stocks can provide the company with additional funds to meet debt repayments or other funding needs to maintain financial stability; on the other hand, by adjusting the proportion of stock and Bitcoin holdings, it balances asset allocation and reduces risks associated with fluctuations in Bitcoin prices.
5. The synergy and impact of the overall strategy:
a. Stock-Bitcoin relationship: Stocks are issued at a premium to purchase Bitcoin, driving up Bitcoin prices, which in turn enhances the company's net asset value and earnings per share, forming a positive cycle. Moreover, financing to buy Bitcoin accelerates profit growth, expands valuation multiples, and pushes stock prices from linear growth to exponential leaps, with market capitalization and stock prices increasing more than the rise in Bitcoin prices.
b. Stock-Bond relationship: As MicroStrategy's market value rises, it pushes the company into more indices, increases the trading of derivatives, and raises trading volume, reducing stock and bond financing costs. Its convertible bonds are uniquely designed, allowing MicroStrategy to choose between conversion and cash repayment, avoiding default issues due to inability to repay at maturity, effectively becoming a 'debt-equity hybrid' tool that is friendly to stock prices and shareholders.
c. Coin-Debt relationship: Debt is denominated in USD, while purchasing power in a coin-based standpoint tends to zero, and the conversion conditions are controlled by MicroStrategy. By using this special 'debt' to buy Bitcoin, as long as Bitcoin prices rise in the long term, the company has the opportunity to achieve substantial profits, with controllable risks.
Companies learning from MicroStrategy
Simply buying Bitcoin can lead to a twenty-fold increase in stock prices, leaving countless companies envious and following MicroStrategy's example.
For these companies, the most direct short-term impact is that while the company's debt increases, they also gain a cash inflow, helping to alleviate financial pressure. As Bitcoin prices rise, the value of the Bitcoin assets held by the company increases, and for public companies, their stocks can also become crypto concept stocks, rising along with the crypto market.
Especially in the second half of this year, listed companies have begun a Bitcoin buying spree. Below are some companies that have taken Bitcoin as an asset reserve:
Marathon Digital:
Like MicroStrategy, this company, regarded as the largest Bitcoin mining company in the world, has also issued convertible bonds to purchase Bitcoin.
According to HODL15Capital statistics, as of November 15, 2024, Marathon Digital ranked first among publicly listed Bitcoin mining companies with a holding of 27,562 Bitcoins.
In November 2024, it issued 1 billion in convertible bonds, planning to use about $199 million of these proceeds to repurchase $212 million of 2026 convertible bonds. The remaining funds will be used for Bitcoin acquisitions and general company purposes, including potential strategic acquisitions, asset expansion, and debt repayment.
Its earliest purchase was in July 2024, when the company spent $120 million to buy 2,282 Bitcoins, and then began issuing $250 million in private bonds to repurchase Bitcoin.
Nilam Resources:
On March 25, 2024, Nilam Resources, a gold mining company based in South America, announced plans to acquire 24,800 Bitcoins valued at approximately $1.7 billion through issuing Series C priority stock. The main purpose of the transaction is to acquire a special purpose entity MindWave located in Mauritius, which holds a large amount of digital assets, including Bitcoin. These assets will serve as collateral for further investments in high-yield projects. This acquisition was reached through a letter of intent (LOI) signed between Nilam and Xyberdata Ltd., with plans to complete it through equity swaps. Nilam believes this move will help it explore the digital asset market and expand its financing channels.
SOS Ltd.:
This is a Chinese company listed on the NYSE that focuses on artificial intelligence and blockchain as core technologies. On November 27, 2024, it announced that its board had approved a plan to invest $50 million to purchase Bitcoin (BTC) to strengthen its blockchain industry layout.
Previously, the company had been involved in the crypto mining business for many years. As early as 2020, SOS announced spending approximately $20 million to procure 14,238 Bitcoin mining machines and 1,408 Ethereum mining machines. In 2023, SOS announced the launch of more than 5,000 of its mining machines in its Texas hosting center and signed a hosting agreement with Bitmain, with a total of 6,000 mining machines hosted, with a term until August 20, 2025.
To maximize investment returns and reduce market volatility risks, SOS plans to adopt various quantitative trading strategies including investment, trading, and arbitrage strategies to help the company achieve robust returns in the current market environment while further optimizing its portfolio over time.
Metaplanet:
This is an investment company based in Japan that primarily focuses on high-tech and innovative sectors, especially in artificial intelligence, blockchain technology, and fintech. It has gone public. On November 28, 2024, it announced plans to raise up to 9.5 billion yen (approximately $62 million) through new share subscription rights to accelerate Bitcoin accumulation.
Earlier this month, it also announced plans to issue ordinary bonds totaling 1.75 billion yen (approximately $11.3 million) at an annual interest rate of 0.36% for a term of one year. Proceeds will be used to purchase Bitcoin.
Since April 2024, it has been continuously accumulating Bitcoin, treating Bitcoin as its strategic financial reserve asset. Because of this behavior, it is referred to as 'Asia's MicroStrategy'. As it continues to purchase Bitcoin, its stock price has also been rising along with Bitcoin prices, similar to MicroStrategy.
Boyaa Interactive:
This company is a developer and operator in the board game industry, founded in 2004 and listed on the Hong Kong Stock Exchange in 2013. Since 2023, it has begun purchasing cryptocurrencies, including Bitcoin, Ethereum, and USDT. On November 12, 2024, when Bitcoin prices surpassed $90,000, Boyaa Interactive voluntarily disclosed its holdings: the company holds 2,641 Bitcoins and 15,445 Ethereum, with total costs of approximately $143 million and $42.578 million, respectively, with average costs of about $54,000 per Bitcoin and $2,756 per Ethereum. It has a floating profit of nearly $100 million.
Tesla:
Since 2021, Tesla has been continuously purchasing Bitcoin and will also choose the right time to sell. According to Arkham data, Tesla's Bitcoin holdings reach 11,509 Bitcoins.
SpaceX:
Reportedly, this company led by Elon Musk also holds Bitcoin, but the exact amount has not been disclosed. It is estimated that SpaceX holds several thousand BTC in its corporate treasury.
Block.one:
The parent company of EOS, it has been reported that it holds up to 140,000 Bitcoins, but the actual amount of Bitcoin held by the company and related investment details have not been fully disclosed.
Block Inc.:
An American payment company whose co-founder Jack Dorsey announced that starting in April 2024, Block will allocate 10% of the gross profits from Bitcoin-related products to purchase Bitcoin. It started buying Bitcoin as early as October 2020, and as of September 18, 2024, Block, Inc. holds 8,211 Bitcoins.
Nexon Co Ltd:
A Korean company specialized in video game creation. It started buying Bitcoin in April 2021, reportedly spending about $100 million to purchase 1,717 Bitcoins.
Boyaa Interactive:
The Hong Kong-listed gaming company Boyaa Interactive has made multiple purchases of cryptocurrencies since 2023. From June 30, 2023, to July 7, 2023, it purchased 19.3808 Bitcoins for a total value of approximately $590,000. Earlier, from June 6 to June 15, it spent $650,000 to buy 24.8932 Bitcoins. On September 13, 2024, over the previous 12 months, the company purchased a total of 93.85 Bitcoins, spending $2.7 million. In November 2024, Boyaa Interactive announced the launch of a $15 million Bitcoin network ecosystem investment management fund, BTC NEXT.
Boyaa Interactive is actively laying out Web3, largely due to the relationship with its founder Wang Feng.
Yingyu Universe:
This is the parent company of the Yingke APP, which has been listed in Hong Kong. In March 2024, it announced that its board had approved a budget of $100 million for the company to purchase cryptocurrencies on any regulated and licensed trading platforms over the next five years.
Of the $100 million, $60 million was used to purchase Bitcoin, approximately $20 million was used to purchase Ethereum, and about $10 million each was used to purchase USDT and USD.
Guofu Innovation:
The Hong Kong-listed financial company Guofu Innovation announced in August 2024 that it had purchased Bitcoin worth a total of 36 million Hong Kong dollars between March and August.
