Source: Talking about Li and other things
Today, I saw a friend share a piece of news in the group: China-based cloud computing company SOS announced plans to purchase $50 million worth of BTC on Wednesday morning. As a result, within a few minutes after the news was released, the company's stock price soared by more than 97%, and the price almost doubled. As shown in the figure below.
This is probably another company that is imitating Microstrategy. It is foreseeable that more and more companies will follow Microstrategy to buy BTC in the future. So in this issue, let’s talk about Microstrategy.
When talking about Microstrategy, we have to mention the company's founder Michael Saylor. He is a staunch believer in Bitcoin and has publicly stated many times that Bitcoin is digital gold and the most scarce asset in the world.
MicroStrategy has been buying Bitcoin since four years ago, under the leadership of Michael Saylor. The following are some of their recent purchases:
For example, on November 25, they spent another $5.4 billion to buy 55,500 BTC, with an average cost of $97,862 per BTC. As of the time of writing, MicroStrategy holds a total of 386,700 BTC, with an average purchase cost of $56,849.75, making it the company with the most BTC among all listed companies. The company currently holds a total value of approximately $37 billion in Bitcoin, with a P/L of $15 billion and an overall return of 68.45%.
A few days ago, Michael Saylor posted in X: I hope to add more green dots. In fact, it is implying that they will continue to buy more Bitcoin. The green dots here refer to the green dots. This needs to be combined with the following figure. Each green dot represents that MicroStrategy has bought another Bitcoin. As shown in the figure below.
The $54 purchase on November 25 was also the largest single purchase transaction for Bitcoin since MicroStrategy first began acquiring Bitcoin in 2020. It was also on November 22 that the company announced the completion of a $3 billion fundraising (i.e., the sale of $3 billion in convertible bonds) and the issuance of nearly $2.5 billion in shares. As shown in the figure below.
Without blinking an eye, MicroStrategy once again spent billions of dollars to buy 97,862 bitcoins per unit. However, most of the investors either disliked the high price of Bitcoin or slowly lost themselves in the process of chasing ups and downs. Some even watched Bitcoin rise from around $20,000 to $90,000 without daring to buy it. They always maintained a sideways mentality of watching the fun, not daring to buy when the price rose, and waiting for a bigger correction when the price fell.
As for how MicroStrategy's approach works, I have seen an article by WOO X Research that has been sorted out quite clearly, so you can just take a look at it. As shown in the figure below.
Next, let’s move on to a potentially more interesting question: If we continue in this way, will Microstrategy go bankrupt?
After understanding how Microstrategy operates, we may see that Microstrategy's biggest liquidation risk is the convertible bonds they issued.
Specifically:
- If convertible bond buyers do not convert to stock before maturity, Microstrategy could be forced to sell BTC to repay debt holders.
- If Microstrategy’s pump needed (which can be understood as the conversion premium) cannot be maintained at around 40% in 5-7 years (of course, it will vary for each bond, see the figure below for details), then the above situation may occur.
So, will the above situation really happen?
We don't think we'll see that, at least in the short term.
First of all, Microstrategy (MSTR) currently has a market value of approximately US$94 billion and bonds of US$4.25 billion (it is said that the main debt holders are Vanguard Group and BlackRock). Their overall debt does not account for a high proportion of the company's financial structure (that is, the leverage ratio is not as exaggerated as imagined), and the approximate maturity dates of these bonds are between 2027 and 2032.
Secondly, the market is currently in a bull market phase, and Microstrategy and BTC are in a positive flywheel cycle, unless BTC collapses on its own (basically impossible) or the correlation between Microstrategy and BTC is lifted.
Next, it is Microstrategy’s situation, or Michael Saylor’s situation. Although they have already generated considerable profits on BTC, according to Michael Saylor, they will not sell any Bitcoin. Of course, you can believe his words or not. After all, we can only believe half of what the boss says. In addition, not selling BTC is only one aspect. It is not ruled out that they will lend the BTC they hold to hedge funds.
Therefore, from the overall perspective, even if Bitcoin plummets in the short term, in theory, even if Microstrategy is forced to sell some Bitcoin, it is estimated that it will not cause a serious stampede in stock prices and coin prices. And in this process, most of those who are thrown off the train are estimated to be those undecided chips or retail investors.
But that doesn’t mean that Microstrategy’s approach will not cause any problems. The problems or black swans that may arise for Microstrategy include:
- MSTR (MSTR is the stock code of Microstrategy) was shorted by some well-known short-selling institutions (such as Citron).
- More and more companies follow Microstrategy's lead and enter the crypto market, leading to possible competitive risks for Microstrategy, which could further reduce MSTR's premium relative to net asset value.
- Any SEC intervention from a regulatory perspective could also reduce MSTR’s premium relative to net asset value.
- An unexpected event occurred with the key figure Michael Saylor, or his sudden change of belief in BTC to no longer being a firm holder.
- Management risks from within Microstrategy.
- Custody risks from Fidelity and Coinbase, that is, if Michael Saylor did not use a strong and secure multi-signature setup, relying solely on a centralized custodian would not rule out the possibility of a single point of failure.
- As mentioned above, it is possible that Microstrategy will lend the BTC it holds to hedge funds. If the hedge fund fails in arbitrage operations after borrowing the coins and is unable to return the BTC and break the liquidation, then it is equivalent to Microstrategy losing the BTC it lent.
- etc……
But no matter how the market changes in the future, we still say that if you keep holding Bitcoin, you will eventually become a winner. Perhaps, only the real old leeks can understand Bitcoin, just as the friends in the group said: BTC is never expensive. As shown in the figure below.
Note: The above content is only a personal point of view and analysis, which is only used for learning records and communication, and does not constitute any investment advice. If any project or website is mentioned in the article, it has no direct interest relationship with Hualihuawai (Hualihuawai does not accept any advertisements from any project party). Please evaluate the security of the corresponding project or website by yourself. Investment is always risky. Don't enter a game that you don't understand, and don't play a game that you can't afford to lose.
