Recently, Metaplanet, a highly regarded Japanese listed company, has been dubbed the 'Japanese version of MicroStrategy' for incorporating Bitcoin into its treasury assets. Recently, the company announced a controversial yet attention-grabbing financing plan—issuing zero-coupon bonds. The total amount raised from these bonds reached 4.5 billion yen (approximately 30 million USD), with the aim of further increasing its Bitcoin holdings. According to Aiying, since adopting Bitcoin as its treasury reserve asset in May 2024, Metaplanet has purchased over 1,000 BTC. Additionally, since January 2024, Metaplanet's stock price has surged by 2,450%. With the combination of cryptocurrency volatility and high-risk financial instruments, this operation not only brings high-return aspirations to the market but also carries unsettling potential risks. Aiying Fundinsight will break down some of the operational logic behind this.
1. Bitcoin Strategy and Zero-Coupon Bonds: How Do They Work Together?
Metaplanet's recent financing was completed through zero-coupon bonds. These bonds do not have interest payments, and the investors' returns come from purchasing the bonds at a price below face value and receiving the full amount at maturity. For example, a bond with a face value of 100 yen might be issued at 90 yen, and the investor would get back 100 yen at maturity, earning a 10 yen difference.
For the company, this type of bond financing has a very low cost. There are no interest pressures, and no need for periodic payments; the only burden is to repay the principal at maturity. However, Metaplanet has not used the funds raised for regular business operations but has placed all bets on Bitcoin, which is a highly volatile asset.
Since May 2024, Metaplanet has acquired more than 1,000 Bitcoins. This strategy of using Bitcoin as a treasury reserve asset, learning from MicroStrategy's high-leverage purchases of Bitcoin: [Thought] From 1.8 billion to 111 billion: How MicroStrategy Drives Market Capital Growth through Bitcoin and Capital Leverage, has become an important representative in the cryptocurrency field. Metaplanet believes that Bitcoin has long-term appreciation potential, can combat inflation, and as a scarce asset, its value is expected to continue to rise with increasing market demand.
But the risks of this strategy are apparent. If Bitcoin prices fall sharply, the value of the assets held by Metaplanet will shrink significantly, while a fixed principal amount must still be repaid when the bonds mature. Once the market value of the assets cannot cover the debt, the repayment gap will become a huge problem.
2. How Does the Leverage Effect Manifest in This Game?
Metaplanet's bond financing plan is essentially a leveraged operation. The company aims to leverage low-cost debt to invest in Bitcoin, an asset with potential high returns, expecting to repay the debt at a higher value after Bitcoin appreciates and retain profits.
For instance, if Metaplanet uses 4.5 billion yen from bond funds to purchase Bitcoin at an initial price of 3 million yen per coin, it would acquire a total of 150 BTC.
Optimistic Scenario
: If Bitcoin prices rise to 4.5 million yen per coin, the total market value of the BTC held by the company would become 6.75 billion yen. After repaying the 4.5 billion yen bond principal, there would still be a net gain of 2.25 billion yen, indicating successful leveraging.
Pessimistic Scenario
: If Bitcoin prices fall to 1 million yen per coin, the total market value of BTC would only be 1.5 billion yen. At this time, the company would not only have no income but would also need to raise an additional 3 billion yen to repay the debt, dramatically increasing financial pressure.
This leverage strategy amplifies the results of Bitcoin price volatility: doubling profits when prices rise and exponentially increasing risks when prices fall.
3. Debt Repayment Pressure: The Dual Test of Bitcoin Prices and Cash Flow
Although zero-coupon bonds themselves do not incur interest expenses, the obligation to repay the principal at maturity is fixed. For Metaplanet, its repayment capacity is challenged by both Bitcoin prices and the company's cash flow management.
1. Bitcoin Price Volatility
Metaplanet has invested all the bond funds into Bitcoin, meaning its repayment capacity is highly dependent on Bitcoin's price performance. If the price falls, the market value of the Bitcoin held by the company may not be sufficient to cover the 4.5 billion yen debt.
For example:
If Bitcoin prices fall sharply to 1 million yen per coin at the bond's maturity, the value of the 150 Bitcoins held by the company would only be 1.5 billion yen, resulting in a funding gap of 3 billion yen.
In this case, the company may need to sell other assets, use operating cash flow, or even issue new bonds to fill the gap. This would significantly increase its financial pressure and could raise market concerns about its repayment capacity.
2. Liquidity of Cash Flow and Refinancing Ability
If the company's Bitcoin assets cannot be realized in time, or if there is insufficient liquidity in the secondary market, the company may face a 'cash-strapped' dilemma at the time of repayment. Moreover, if the market questions Metaplanet's credit rating, refinancing difficulties will significantly increase.
Currently, according to Aiying, Metaplanet has not publicly disclosed the specific credit rating of its bonds, but the bond guarantee arrangements show some repayment security—establishing a priority mortgage through real estate (such as land and buildings) held by subsidiaries, allowing bondholders to receive some compensation in the event of default. However, this guarantee can only cover part of the debt, not entirely solve the problem.
3. Investor Perspective: How Should This Game of Risk and Return Be Viewed?
For bond investors, Metaplanet’s zero-coupon bonds are full of opportunities but also harbor risks:
Credit Ratings and Market Confidence
Credit ratings and market confidence are central to investors' focus. Although Metaplanet's debt issuance provides asset guarantees, investors need to remain cautious about its repayment capacity in the absence of specific ratings.
Core Variables of the Bitcoin Market
Metaplanet's asset value is closely related to Bitcoin's price. If investors believe that Bitcoin will continue to rise in the future, then this bond will be a relatively safe choice; conversely, the uncertainty of Bitcoin's price will become the biggest risk.
Potential Returns Coexist with Default Risks
Although zero-coupon bonds do not have interest payments, the returns between the face value and the issue price (for instance, purchasing a bond with a face value of 100 yen for 90 yen) need to be weighed against potential default risks.
4. Conclusion: The Tightrope Walker Under High Leverage
Through the financing operation of zero-coupon bonds, Metaplanet showcases a highly adventurous investment strategy: utilizing low-cost funds to bet on the future value of Bitcoin. The logic is clear and exciting—if Bitcoin prices continue to rise, the company will profit easily, and shareholders and investors can enjoy the appreciation dividends of the crypto assets. However, at the same time, Bitcoin's extreme volatility may also result in painful consequences for this adventure.
In the future, the success or failure of this gamble will depend on two key factors: the price trend of Bitcoin and the company's ability to manage cash flow. For investors, how to control risks and diversify investments while chasing high returns will be the wisest strategy.
