Recently, Metaplanet, a highly regarded publicly traded 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 intriguing financing plan—issuing zero-coupon bonds. The amount raised from this bond issuance reached 4.5 billion yen (approximately 30 million USD), aimed at 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 risen by 2,450%. With the combination of cryptocurrency volatility and high-risk financial instruments, this operation not only brings high-return fantasies to the market but also accompanies disturbing potential risks. This article from Aiying Fundinsight aims to break down some of the operational logic involved:
1. Bitcoin Strategy and Zero-Coupon Bonds: How Does the Combination Work?
Metaplanet's financing was completed through zero-coupon bonds. These bonds do not have interest payments, and the investor's return comes from buying the bond at a price lower than its face value and receiving the full amount at maturity. For example, a bond with a face value of 100 yen may be issued at 90 yen, and the investor receives 100 yen at maturity, 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 repaying the principal at maturity. However, Metaplanet has not used the funds raised 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 purchase of Bitcoin: [Thought] From 1.8 billion to 111 billion: How MicroStrategy Drives Market Value Growth through Bitcoin and Capital Leverage?, becoming 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 continuously rise with increasing market demand.
However, the risks of this strategy are evident. If Bitcoin prices drop significantly, the value of the assets held by Metaplanet will plummet, while a fixed amount of principal must still be repaid at the bond's maturity. 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 uses low-cost debt to leverage Bitcoin, a potentially high-return asset, hoping to repay the debt with a higher value after Bitcoin appreciates and leave a profit.
For example, assume 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
The price of Bitcoin rose to 4.5 million yen per coin, and the total market value of the BTC held by the company became 6.75 billion yen. After repaying 4.5 billion yen in bond principal, there is still a net gain of 2.25 billion yen, and the leveraged operation has succeeded.
Pessimistic Scenario
If the price of Bitcoin falls to 1 million yen per coin, the total market value of BTC would only be 1.5 billion yen. At this point, the company would not only have no profit but would also need to raise an additional 3 billion yen to repay its debt, significantly increasing financial pressure.
This leveraged strategy amplifies the results brought by Bitcoin price volatility: profits double when prices rise, while risks multiply when prices fall.
3. Debt Repayment Pressure: A Dual Test of Bitcoin Price and Cash Flow
Although zero-coupon bonds do not have interest expenses, the obligation to repay the principal at maturity is fixed. For Metaplanet, the ability to repay debt is challenged by both Bitcoin prices and the company's cash flow management.
1. Bitcoin Price Volatility
Metaplanet invested all the bond funds into Bitcoin, meaning its debt repayment ability is highly reliant on Bitcoin's price performance. If the price drops, 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 price of Bitcoin falls sharply to 1 million yen per coin at the bond's maturity, the market value of the 150 Bitcoins held by the company would only be 1.5 billion yen, leaving a 3 billion yen funding gap.
In this situation, the company may need to sell other assets, utilize operational cash flow, or even issue new bonds to fill the gap. This would double its financial pressure and even raise market concerns about its ability to repay debt.
2. 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-strapped' dilemma at the debt repayment time. Additionally, if the market raises doubts about Metaplanet's credit rating, refinancing will become significantly more difficult.
Currently, according to Aiying, Metaplanet has not publicly disclosed the specific credit rating of its bonds, but its bond guarantee arrangements show some repayment security—establishing priority collateral through real estate (such as land and buildings) held by subsidiaries, allowing bondholders to receive some compensation in case of default. However, this guarantee can only cover part of the debt and does not completely resolve the problem.
3. Investor Perspective: How to View This Game of Risk and Reward?
For bond investors, Metaplanet's zero-coupon bonds are filled with opportunities but also harbor risks:
Credit Ratings and Market Confidence
Credit ratings and market confidence are core concerns for investors. Although Metaplanet's debt issuance provides asset guarantees, investors need to remain cautious about its repayment ability in the absence of a specific rating.
Core Variables of the Bitcoin Market
Metaplanet's asset value is closely linked 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 face value and issue price (for example, purchasing a bond with a face value of 100 yen at 90 yen) must be weighed against the potential risk of default.
4. Conclusion: A Dancer on the Edge of a Knife with High Leverage
Metaplanet's financing through zero-coupon bonds demonstrates a highly adventurous investment strategy: using 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 easily profit, and shareholders and investors can enjoy the appreciation dividends of crypto assets. However, at the same time, Bitcoin's extreme volatility could result in painful costs for this gamble.
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, while chasing high returns, how to control risks and diversify investments will be the wisest strategy.
