Author | Mingdao

Today let's talk about the big strategy of MicroStrategy.

MicroStrategy has truly played the biggest golden egg in the crypto circle during this cycle, with paper profits exceeding 15 billion USD in less than two years.

It is not just a triple arbitrage of stocks, bonds, and currencies; the key is turning MSTR into a real Bitcoin in traditional finance (recently MSTR's trading volume surpassed that of Bitcoin ETFs), which can be considered a masterpiece of 'borrowing falsehood to achieve truth'.

Michael Saylor is neither from a Wall Street blue blood background nor a crypto OG; he really is like a blind man swinging at a master.

Here I will briefly discuss several key parts of his trading structure design:

Stock / Currency Relationship
These two have two key flywheels, one is the issuance of stock at a premium, purchasing Bitcoin, driving Bitcoin prices up, enhancing its net asset value and earnings per share; this is linear leverage.
The second flywheel is financing to buy coins, accelerating profit growth, expanding valuation multiples (P/B, P/E increase), stock prices leap from linear to exponential leverage, with market value and stock prices rising more than the price of Bitcoin itself.

Stock / Bond Relationship
As MSTR's market value increases, it enters more indices, leading to more trading derivatives, increased trading volume, and reduced financing costs for stocks and bonds, creating a structure that can be both debt and equity, further lowering the overall debt ratio.

MicroStrategy's convertible bonds are also a very exquisite design (filled with Buffett's wisdom).

Convertible bonds are essentially medium to long-term bonds (5-year term, spanning at least one crypto cycle), most of them are zero-interest, with no principal repayment during the period. This ensures that there is no partial repayment and interest payment pressure during this time, further reducing the risk of debt default due to a spiral of falling coin prices.

What's more powerful is that, unlike traditional convertible bonds, the option to convert into stock or cash repayment lies with MicroStrategy, not with the bondholders, fundamentally avoiding the problem of default due to inability to repay upon maturity (in the worst case, it can directly convert all into stock). This financing premium capability is extraordinary.

Although many people generally believe that issuing bonds increases the debt ratio and raises risk premiums, which is unfavorable for stock prices, this convertible bond essentially gives complete control to MicroStrategy's 'debt-equity' tool. It is very friendly towards stock prices/shareholders.

Currency / Bond Relationship
Debt is denominated in USD, and from the perspective of a currency standard, purchasing power approaches zero, and the initiative on convertible terms lies with MicroStrategy. It borrows a 'debt' whose purchasing power approaches zero to buy Bitcoin, which has unlimited purchasing power, especially with a structure of zero default risk. From a long-term perspective, it is a situation where one cannot lose.

In both the crypto circle and traditional finance, there have been many years, and I have indeed not seen such a master who can play triple arbitrage of stocks/bonds/currencies so exquisitely.

Many people speculate whether MicroStrategy's outcome will be like the stock version of Luna. I think there is no comparability in the overall risk structure of the two, let alone the so-called death spiral.

As for when the flywheel stops turning, and when the music stops, the core lies in how long the high premium of stocks and individual net currencies can be maintained.

If the market trend breaks expectations, and the supply of Bitcoin derivatives increases, and MicroStrategy's stock/currency premium shrinks to within 1.2, this financing will be difficult to sustain. But MicroStrategy will still be a big winner.

MicroStrategy's long-term winning structural construction can truly be compared to Buffett's Berkshire Hathaway in the traditional financial world.

From the perspective of premium levels, MSTR reaching 1 trillion feels easier than Ethereum reaching 1 trillion.

A few final points. MicroStrategy currently has a 300% premium on Bitcoin, and for secondary market participants, if they do not understand the variables involved, the risk is extremely high. The continuously growing scale means that the premium will only shrink, not expand; sustained financing capability is one of the variables that will turn the premium from virtual to real.

Additionally, it would be best for everyone to learn from MicroStrategy. If a hundred listed companies adopt its Bitcoin standard, raising the overall holding cost of Bitcoin, it would be equivalent to helping reduce the premium bubble together.

Can other assets (like ETH, SOL, meme) replicate the same strategy? The core of this strategy's validity is having enough counterparties willing to accept similar convertible bond terms, and they accept it because more counterparties wish to gain exposure to different risk combinations relative to Bitcoin.

Assets like ETH/SOL face more economic models, technology, and market risks beyond liquidity, making operational difficulty much greater, but potential returns are also high. It's hard to say if a degenerate version of MicroStrategy can be created.

I feel the players are already rubbing their hands in anticipation.

#BTC