Original author: HighFreedom (X: @highFree2028).
Is MSTR, the biggest variable in this bull market, operating a Ponzi-like model similar to LUNA? What is the essence of this company? Why is the MSTR model said to act as a 'catalyst' for BTC growth? Will the MSTR model break the four-year cycle in the crypto world or even lead to an eternal bull market? Through which dimensions can we observe the MSTR model and see when this cycle ends?
Note 1: The article involves many charts, divided into 7 chapters. Due to Twitter's length limitation, it had to be split into 7 threads.
Note 2: Points 1, 2, and 3 mainly provide foundational information. Friends with little understanding of MSTR can start from point 1.
Note 2: All content in points 4, 5, and 6 is deep analytical thinking. Friends who are very familiar with MSTR can start directly from point 4.
(Basic content section)
1. Introduction to MSTR's fundamentals: The company's original main business, shareholder structure, revenue situation.
2. Core strategy analysis for buying coins: Historical analysis of coin purchases, cost and quantity of holdings, company debt situation, core KPIs of the buying strategy (Bitcoin per share).
3. Source analysis of the funds for crazy coin purchases: The 21/21 PLAN is a $42 billion coin buying plan for 'ATM market price stock sales' and 'Convertible Bonds issuance (commonly referred to as CB).'
"Convertible bonds" are one of the essence operations, and a core observation object for whether a spiral collapse will occur in the future. This section will be analyzed in detail later.
(In-depth analysis section)
4. The core of the game: Basic knowledge of CB, why MSTR's CB is so popular, who is buying MSTR's CB, and what is the essence of CB.
5. Discussion on the MSTR model: What does MSTR's premium represent for BTC? What does it mean to buy or sell this company's stock?
6. When does the game stop: Will the twilight of the MSTR model coincide with the end of BTC? Through which dimensions can we observe this? If a spiral decline occurs, what would the situation look like?
(Key time points)
7. MSTR's key timeline for entering the NASDAQ NQ100 this month.
(1/7)
(The image shows a page from MSTR's Q3 2024 financial report, currently holding 386,800 BTC.)
1. Introduction to MSTR's fundamentals:
Original main business of the company: BI software, categorized as 'technology' on Bloomberg, with annual software revenue of around $400 million.
Company shareholder structure: According to data disclosed at the end of Q3 2024, the boss Saylor is the largest shareholder, holding 9.75%; the other top ten shareholders are basically clients of various asset management companies or self-operating funds (but note that for ordinary A shares, Saylor's shares are B shares, which have ten times the voting power of A shares, so Saylor currently still has the final say in the company).
Company's existing financial situation: There should be around $3 billion in cash on the books (just announced last Friday); liabilities (mostly convertible bonds) are around $7 billion.
(2/7)
2. Core strategy analysis for buying coins:
Long-term bullish on BTC/USD, continuously buying BTC. Utilizing internal cash accrual, equity, and debt to acquire 386,700 Bitcoins at approximately $22 billion (with a cost of about $56,849 USD), currently valued at around $36 billion based on a BTC price of $95,000 USD. Reference: saylortracker.com.
Long-term bullish on BTC/USD, continuously buying BTC. The company made its first coin purchase in September 2020, with an average price of $10,419, acquiring 16,796 BTC.
Utilizing internal cash accrual, equity, and debt to acquire 386,700 Bitcoins at approximately $22 billion (with a cost of about $56,849 USD), currently valued at around $36 billion based on a BTC price of $95,000 USD.
reference: saylortracker.com
Company KPI core: Bitcoin per share (BTC Yield in financial reports).
The core idea is that shareholders should not care whether I issue more stocks to dilute everyone's interests or borrow money to buy coins, as long as the BTC share corresponding to each of your shares continues to increase (everyone should not care about my stock price fluctuations in the short term, I am just going to buy coins everywhere).
Note: How does MSTR continue to increase BTC yield? This will be discussed next.
reference: saylorcharts.com/?chart=btcYield…
(3/7)
3. Source analysis of the funds for crazy coin purchases: The 21/21 PLAN is a $42 billion coin buying plan for the next three years.
A listed company usually has two methods of financing: one is to issue more stock to bring more shareholders on board (equity financing); the other is to issue bonds, borrowing money from others (debt financing).
MSTR's market price for selling shares: MSTR will issue $21 billion worth of stock in a single event on October 30, 2024. Note that this is a one-time large stock issuance, which can be traded at any time in the next three years and does not require a public announcement before selling (known as At the Market "ATM").
MSTR's Convertible Bonds (commonly referred to as CB): Funding through convertible bond issuance, CB is different from regular bonds, having both equity and debt characteristics. This will be explored in detail, as I believe this is also the core of MSTR's game.
According to the latest regulatory filing: $8.2 billion of the $21 billion ATM stock quota has been used, and $3 billion of the $21 billion CB quota has been used.
reference: microstrategy.com/financial-documents/
(4/7)
4. The core of the game: Providing an opportunity for funds optimistic about BTC but unable to participate to enter through channels like CB.
Basic knowledge of Convertible Bonds (CB): Convertible bonds are essentially debt that can be converted to stock once certain conditions are met. Essentially, it's a corporate bond + a call option on the company's stock. But note that if the company goes bankrupt, the repayment order is regular bonds > convertible bonds > shareholders, so the repayment priority of CB is relatively lower (there's no free lunch in the world).
Taking the $3 billion issued on November 21, 2024, as an example: 0 interest, principal protection (to some extent), 5 years, with bonus call options, at a 55% premium.
Simply put,
Situation 1 (good situation): Only if the stock price reaches $672 within five years can creditors convert the bonds into stock. If the stock price rises to $700, then the profit ratio is (700 - 627) / 672 = 4.2%.
Situation 2 (bad situation): If the company's stock price does not reach $672 within five years, creditors can only wait for five years to end and receive cash back from MSTR (for example, if they bought $100 million worth of CB, creditors can only helplessly recover the principal of $100 million at that time).
Who helps MSTR issue CBs: Traditional large investment banks such as Barclays.
Who is buying CB: Hedge funds implementing volatility strategies and long-only funds optimistic about BTC but unable to buy coins directly.
To be honest, hedge funds that do volatility strategies don't excite me; these people probably have no faith in BTC. For example, if BTC's volatility is currently high, they short vol and conversely go long on vol.
What excites me most is that the largest German insurance company Aliianz, with assets of €2 trillion, has started participating in BTC, likely taking a net long position.
Why doesn't Aliianz directly buy coins: Because the nature of many funds means they can't buy BTC.
Imagine you are a bond fund manager managing $100 billion, and you are optimistic about BTC. However, the nature of bond funds only allows investment in government bonds and corporate bonds, which means you can't buy BTC spot or BTC call options. Additionally, you will find that your fund's target return might only be 6% or 7%, with most being government bonds. For MSTR's convertible bonds, this is essentially the super alpha in your position.
At this point, MSTR says, 'Brother, buy my company's convertible bonds; this product is highly correlated with BTC's price movements. Moreover, this product guarantees your principal, as long as the company doesn't go bankrupt, I’ll return your money in five years; if BTC doubles and reaches your exercise price, like I take 70%, you take 30% (somewhat similar to a reality where a business owner says: “Brother, I heard you are good at trading coins. How about this, I give you 20 million, and you help me trade coins, and we split the profits 55-45. But I have one requirement, I want my principal back).
Such products have a huge attraction to funds optimistic about BTC but currently unable to participate. Products like CB open up channels for insurance and bond funds to enter the BTC market's ups and downs. The market currently lacks such products, which is why the subscriptions for CB have been exceptionally hot (the original plan was to issue $1.75 billion worth of CB last month, but it was so popular that it was directly issued at $3 billion two days later).
The essence of CB: It essentially accelerates the tiered entry of funds into BTC.
For hedge funds, this is a good leg in volatility long-short strategies. To be honest, these people are not our long-time friends.
For bond funds and insurance funds, this is equivalent to using the CB product to be net long on BTC with us.
CB inventory situation: There are currently six phases of CB in the market. Investors from the first five phases have made a fortune as the coin price and MSTR's stock price have risen (this thread can't fit the charts, specific market prices for each phase of convertible bonds can be seen. The latest market quote for the 2028 phase is 224, with a yield of 124% for holders).
(5/7)
5. Discussion on the MSTR model: What does MSTR's premium represent for BTC? When to buy or sell this company’s stock? What is the essence of this company?
MSTR's premium:
I believe this represents the acceleration of BTC price increases in the near future (the historical average premium is 75%. The current premium has dropped from high levels to around 2.5).
When to buy and sell MSTR's stock:
If you think BTC will accelerate upward in the near future, then just buy MSTR; conversely, if you think BTC prices will level out, then sell MSTR.
The essence of MSTR:
Issuing financial products that meet different yield and risk needs based on BTC as the underlying asset (similar to what traditional investment banks do, helping with stock issuance and IPOs, etc.)
(6/7)
6. When does the game stop: The transfer of BTC ownership and the catalytic role of MSTR.
Accelerated transfer of BTC ownership:
To be honest, I've been trading coins for 8 years, and my strong faith in BTC comes from two points:
1. A good tool to hedge against excessive printing by sovereign governments: Since the introduction of unconventional monetary policies like QE after the U.S. financial crisis in 2008 and the Japanese experience in the 1990s, sovereign governments tend to print large amounts of money when problems arise. This is akin to a drug addiction, once involved, it’s hard to quit. Ultimately, it will lead to excessive issuance of currency, making BTC’s underlying properties an ideal tool to absorb excess currency.
2. Accompanying BTC's growth: I believe that on one hand, BTC's market value is growing larger, and on the other hand, the circle of funds participating in BTC is also expanding, which is what is meant by the transfer of BTC ownership.
Hacker IT guy -> High net worth individuals -> Tech companies -> Fund institutions -> Small countries -> Large countries.
MSTR introduces funds that might take years to participate in BTC ahead of time through various financial instruments, which is, to some extent, an overdraw on BTC's price.
For example, in the next cycle in 2028, insurance and bond funds may only be able to participate in BTC, but through tools like CB, they could convert funds wanting to participate but unable to buy coins directly into on-market long positions, and get on board in 2024.
Simply put, the coin price that might originally need to rise to $150,000 by the end of 2025 could be pushed to that level by a company like MSTR in just three months.
When does the game come to an end:
But what if one day MSTR's leveraged trading approach comes to an end? I think it would be like this:
If MSTR cannot issue various products like bonds anymore, and has greatly overdrawn future price increases, but at the same time, there are no larger funds stepping in to buy BTC, BTC may face a terrifying spiral decline similar to LUNA.
For example, MSTR raised the coin price to 250,000 within a year, at which point they couldn't issue bonds anymore; but if larger funds like U.S. pensions or small sovereign governments don't take over, it could be troublesome.
So, if one day I could give Saylor some advice, it would be: don't front-run too quickly, and don't leverage too aggressively, otherwise the terrifying spiral decline could cut off the path of BTC ownership transfer, causing significant harm.
Finally, I want to list my observation dimensions:
Dimensions for observing the twilight of the MSTR model and the peak of BTC:
1. The popularity of the primary market subscriptions for various products like CB (if the subscriptions for subsequent CB issues are not as hot, we might need to start worrying; it would be best to find the investment banks helping MSTR issue CBs, as they are the first to know the market conditions).
2. The premium of CB issuance and financing costs: CB is essentially a financing tool and comes with financing costs. MSTR essentially sold a call on its own stock, which is a high-level shorting of BTC; the funds buying CB are essentially buying this call. The CB issued in November had an exaggerated premium of 55%. If the subsequent premium decreases, it actually means the call value granted to investors is increasing, i.e., financing costs are decreasing.
3. The entry progress of larger funds: If CB gradually stops being issued, then larger funds, such as pensions, need to step in. It's crucial to closely observe these big players' attitudes and movements regarding BTC.
Note: Originally, I believed the market's peak could be roughly estimated by combining external monetary cycles and internal OG selling situations; however, as the MSTR model matures, I think it is necessary to include when the MSTR model might come to an end in the analysis framework and system.
(7/7)
7. Entering the NASDAQ timeline in December.
The NASDAQ adjusts its components at the end of each year, and MSTR currently meets all the requirements.
Key time 1:
After the U.S. stock market closes on December 13: The NASDAQ compilation committee will announce the component stock adjustment announcement.
Key time 2:
On December 23, the U.S. stock market opens: MSTR is officially included in the index and begins trading.
Finally, I want to talk about the significance of MSTR's inclusion in the NASDAQ:
1. Passive fund allocation: The NASDAQ's aggressive scale is around $300 billion, and according to market weighting, around $1.5 to $2 billion could be passively invested into MSTR.
2. Expanding BTC funding consensus: Imagine if Chinese aunties could also buy a little NASDAQ fund through Alipay; essentially, they are passively allocating a little of MSTR's stock, which fundamentally means they are passively allocating a little BTC. I actually think the importance of this for BTC may not be less than the listing of the U.S. BTC SPOT ETF on January 10 this year.
Reference: mstr-tracker.com
Finally
Please protect your BTC and prepare for the larger main wave in 2025. Don't easily part with your valuable chips until the game is about to stop.
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