Article source: Aiying compliance
Recently, Metaplanet, a highly regarded listed company in Japan, has been dubbed the 'Japanese version of MicroStrategy' for incorporating Bitcoin into its treasury assets. Recently, the company announced a controversial yet eye-catching financing plan—the issuance of zero-coupon bonds. This bond issuance raised 4.5 billion yen (approximately $30 million) 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 expectations to the market but also accompanies disturbing potential risks. Aiying Fundinsight will break down some of the operational logic behind this.
1. How do Bitcoin Strategy and Zero-Coupon Bonds Work Together?
Metaplanet's financing was completed through zero-coupon bonds. These bonds do not have interest payments, and the returns for investors come from purchasing the bonds at a price lower than their face value and receiving full repayment at maturity. For example, a bond with a face value of 100 yen might be issued at 90 yen, and at maturity, the investor receives 100 yen, earning a 10 yen difference.
For the company, the cost of this bond financing is extremely low. There is no interest pressure, nor is there a need for periodic payments; the only burden is to repay the principal at bond maturity. However, Metaplanet has not used the raised funds for regular business operations but has bet everything on Bitcoin, a highly volatile asset.
Since May 2024, Metaplanet has purchased over 1,000 Bitcoins. This strategy of using Bitcoin as a treasury reserve asset learns from MicroStrategy’s high-leverage Bitcoin purchases: [Thinking] From 1.8 billion to 111 billion: How MicroStrategy drives market capitalization growth through Bitcoin and capital leverage? It has become an important corporate 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 rise continuously with increasing market demand.
However, the risks of this strategy are evident. If Bitcoin prices fall sharply, the value of the assets held by Metaplanet will shrink significantly, while a fixed principal amount still needs to be repaid at bond maturity. Once the asset value 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 leverage operation. The company uses low-cost debt to leverage the potentially high-return asset of Bitcoin, hoping to repay the debt at a higher value after Bitcoin appreciates while leaving a profit.
For example, suppose Metaplanet uses 4.5 billion yen of bond funds to purchase Bitcoin at an initial price of 3 million yen per coin, acquiring a total of 150 BTC.
Optimistic Scenario
: If the Bitcoin price rises to 4.5 million yen per coin, the total market value of the BTC held by the company becomes 6.75 billion yen. After repaying the 4.5 billion yen bond principal, there is still a net gain of 2.25 billion yen, and the leverage operation succeeds.
Pessimistic Scenario
: If the Bitcoin price drops to 1 million yen per coin, the total market value of BTC is only 1.5 billion yen. At this point, the company not only has no profits but also needs to raise an additional 3 billion yen to repay the debt, resulting in increased financial pressure.
This leverage strategy amplifies the results brought by Bitcoin price fluctuations: profits double when prices rise, and risks multiply 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, their obligation to repay principal at maturity is fixed. For Metaplanet, the repayment capability faces a dual challenge from Bitcoin prices and the company's cash flow management.
1. Bitcoin Price Volatility
Metaplanet has invested all the bond funds into Bitcoin, which means its debt repayment capability is highly dependent on the performance of Bitcoin prices. If prices fall, 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 the Bitcoin price drops sharply to 1 million yen per coin at the time of bond maturity, the value of the 150 Bitcoins held by the company would only be 1.5 billion yen, facing a funding gap of 3 billion yen.
In this case, the company may need to sell other assets, use operational cash flow, or even issue new bonds to fill the gap. This would double its financial pressure and could even raise market concerns about its debt repayment capability.
2. The Liquidity of Cash Flow and Refinancing Ability
If the company's Bitcoin assets cannot be liquidated in time or if there is insufficient liquidity in the secondary market, the company may face a 'cash shortfall' dilemma at the debt repayment time. Furthermore, if the market questions Metaplanet's credit rating, refinancing will become significantly more difficult.
Currently, according to Aiying, Metaplanet has not publicly disclosed specific credit ratings for its bonds, but its bond guarantee arrangements show a certain level of debt repayment assurance—establishing priority mortgages 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 and does not fully resolve the issue.
3. Investor Perspective: How to View this Game of Risk and Return?
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 the core concerns for investors. Although Metaplanet's debt issuance provides asset guarantees, investors need to be cautious about its debt repayment capability in the absence of specific ratings.
Core Variables of the Bitcoin Market
The asset value of Metaplanet is closely related to Bitcoin prices. 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 prices 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 issuance price (e.g., purchasing a bond with a face value of 100 yen at 90 yen) need to be weighed against potential default risks.
4. Conclusion: A Dancer on the Edge of a Knife under High Leverage
Metaplanet's financing operation through zero-coupon bonds demonstrates a highly adventurous investment strategy: using low-cost funds to bet on the future value of Bitcoin. Its 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 crypto assets. However, at the same time, the severe fluctuations in Bitcoin could also result in painful consequences for this venture.
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, chasing high returns while controlling risks and diversifying investments will be the wisest strategy.
