Original author: YBB Capital Researcher Ac-Core
1. Introduction
MicroStrategy was originally an enterprise software company focused on business intelligence solutions, but since 2020, its focus has shifted significantly to Bitcoin investment. The company raised funds to purchase Bitcoin by issuing stocks and convertible bonds, making it the focus of the U.S. stock market. On February 6, 25, MicroStrategy, the listed company with the most Bitcoin in the world, announced that it would officially change its name to Strategy (for ease of reading, it will still be referred to as MicroStrategy below). At that time, data showed that Strategy held 471,107 Bitcoins on its balance sheet, accounting for about 2% of the total global Bitcoin supply. By February 21, 25, MicroStrategy had hoarded nearly 500,000 Bitcoins, worth more than $40 billion.
MicroStrategy essentially turns the stock market into a Bitcoin ATM through capital structure design - raising funds to increase Bitcoin holdings by issuing new shares/convertible bonds, and then using Bitcoin holdings to feed back stock price valuations, forming a capital closed loop that is deeply tied to crypto assets. With this high-premium financing mechanism unique to U.S. stocks, MicroStrategy not only dominates the Bitcoin concept stocks, but also uses equity issuance and currency price manipulation to develop a set of alchemy certified by the U.S. stock market.
2. What is the “magnet” for MSTR stock price speculation?
Image source: abmedia.io
MicroStrategys financing method is very clever. It mainly raises funds through a combination of stocks and bonds. In the initial stage, it relied on issuing bonds and its own cash reserves, and even some common stocks and convertible bonds. But the disadvantage of issuing ordinary bonds is that you have to pay interest, but at that time its cash flow was still good, and the software business brought in tens of millions of dollars of positive cash flow, which was enough to pay the interest on these debts.
In this cycle, it has used a stock issuance mechanism called ATM (At-the-market) on a large scale, that is, selling stocks directly in the secondary market. MicroStrategy uses a strategy that combines stock issuance and bond issuance to play the alchemy of the capital market. When the leverage ratio is low, it quickly raises funds to buy Bitcoin by issuing additional stocks, thereby increasing leverage and increasing its valuation premium when Bitcoin rises. During the bull market, its premium was as high as 300%.
However, as time went on, the market gradually realized that MicroStrategy was selling a large number of stocks, causing the stock price to fall and the premium to shrink. At the same time, the leverage ratio decreased, and the company gradually turned to a financing method mainly based on debt issuance. With this change, MicroStrategys pace of buying Bitcoin slowed down, causing the demand for Bitcoin in the market to begin to weaken.
MicroStrategy therefore played a game of “premium hedging.” It financed its bitcoin purchases by selling shares at high premiums, and when the premium fell, the company turned to issuing bonds. This model provided the company with enough funds to operate its bitcoin purchases, even though the market’s enthusiasm for its shares waned as it gradually realized these operations.
Overall, MicroStrategy uses different financing strategies in different cycles, taking advantage of the high premium of the stock market and steadily increasing leverage through bonds. For Bitcoin, MicroStrategys slower pace may mean a weakening of Bitcoins upward momentum in the short term; and for MicroStrategy, this diversified financing method enables it to respond flexibly in different market environments.
What are the reasons behind the sharp rise and fall of MicroStrategys stock price, and how they attracted a large number of speculators by investing in Bitcoin? Where does the coin-to-gold technique of the billion-dollar market value stand out? In short, there are several key points:
The nonlinear relationship between stock price and Bitcoin: Many people think that MicroStrategys stock price should rise and fall in sync with Bitcoin, but this is not entirely true. For example, in November and December last year, when Bitcoin was still rising, MicroStrategys stock price actually began to fall. So its stock price fluctuations are not just directly linked to the price of Bitcoin.
The reaction and long-term impact of the narrowing premium: MicroStrategys premium is gradually shrinking compared to the previous one. Michael J. Saylors focus is not the value of the stock itself, but its volatility. In other words, he is promoting MicroStrategy as a high-volatility speculative tool, especially attracting institutional investors who cannot directly purchase Bitcoin ETFs.
Bitcoin Proxy Investment: Many institutions cannot directly purchase Bitcoin or Bitcoin ETFs due to regulatory restrictions or internal policies, especially in some countries such as South Korea and Germany. Therefore, MicroStrategy has become an alternative option for these institutions to invest in Bitcoin. If they cannot buy ETFs, they will buy MicroStrategys stocks because it is highly correlated with Bitcoin.
Michael J. Saylors genius marketing and MicroStrategys self-fulfilling prophecy: Michael J. Saylor is very good at marketing. He not only promotes MicroStrategys stocks, but also emphasizes its leverage effect. That is, if you are optimistic about the increase in Bitcoin, then MicroStrategys stock will increase more. And buying MicroStrategy is safer than buying options with leverage, because you dont have to worry about liquidation and other issues.
Uniqueness of MicroStrategy: MicroStrategys success relies heavily on its strong financing capabilities. Saylor constantly raises money for the company to buy more Bitcoin. Saylor is also very good at selling. He gives speeches everywhere and promotes on YouTube, packaging MicroStrategy as a super leverage tool to attract speculators around the world.
3. “Hold Bitcoin, Never Sell”: Michael J. Saylor’s Crypto Jihad
Image source: blocktempo
Michael J. Saylors past wave of Bitcoin promotion actually had a profound impact on the entire Bitcoin industry. By constantly appearing in public, accepting interviews, and giving speeches, he not only made Bitcoin popular, but also attracted a large number of institutional investors to enter the market. It can even be said that MicroStrategy and ETF are the two major buyers in the current Bitcoin market. The interesting thing is that although ETF is very important, MicroStrategys operation is more eye-catching in comparison, because MicroStrategy only buys and does not sell, and ETF will sell out from time to time.
In terms of marketing, the most impressive thing is that Saylor once said that he had made a will to destroy his personal Bitcoin private key after his death, completely erasing these Bitcoins from circulation. His leader-level operation seemed to show that he had made a lasting contribution to the Bitcoin industry. Although no one knows whether he will really fulfill his promise in the future, his words more or less gave the market a shot of stimulant.
In addition, MicroStrategy’s Bitcoin is not actually controlled by Saylor himself or MicroStrategy. These Bitcoins are held in custody by two trusted third-party custodians, Fidelity and Coinbase Custody, which comply with the audit and regulatory requirements of listed companies. Therefore, those who are worried about what will happen to their Bitcoins after his death can rest assured.
Michael J. Saylor is not only a big promoter of Bitcoin, but in some ways, he is even more extreme than some early Bitcoin investors. Long before the emergence of ETFs, he built MicroStrategy into a Bitcoin ETF-like existence, and the conversation between him and Musk brought a key boost to Bitcoin investment. According to market rumors, Musks decision to let Tesla buy Bitcoin was largely due to Saylors advice.
Saylor is not limited to Bitcoin. Some people in the market believe that his latest remarks show that he supports the development of the entire digital economy, proposing that the United States should become the leader of the global digital economy and promote the on-chain and tokenization of all assets. He is no longer just a Bitcoin extremist, but sees the potential of blockchain technology in a wide range of fields. This open attitude has also earned him more recognition in the blockchain industry.
Turning to the United States future digital economy layout, Saylor even proposed the idea of incorporating Bitcoin into the national strategic reserve to further expand the United States leadership in the global digital economy. He not only promoted Bitcoin, but also proposed a vision of a global on-chain economy, which allows us to see that the global economy may move towards a more decentralized financial landscape in the future, and there may even be a cyber-financial system that transcends sovereign states.
However, in this future pattern, capital flows and regulation will also face new challenges. In particular, if the United States dominates this on-chain economy, other countries or organizations around the world, such as China, the European Union or South Korea, will face greater pressure for capital outflows. Even if regulators in various countries try to control capital flows through traditional means, these means will become powerless in the face of a decentralized on-chain economy. On March 25, the Trump family crypto project World Liberty Financial Inc. (WLFI) officially announced plans to launch a stablecoin USD 1. The stablecoin business is too profitable, and USD 1 will be 100% backed by short-term U.S. government bonds, U.S. dollar deposits and other cash equivalents. This seems to indicate that the United States will use more stablecoin issuance to alleviate the U.S. debt crisis in the future.
4. Mobius Cycle, Michael J. Saylor’s Asset Game
Image source: thepaper
Today, the price of Bitcoin has fallen to around $87,000, while MicroStrategys holding cost is about $66,000. This makes people wonder: What will happen to the market if the price of Bitcoin falls below the cost price of MicroStrategys purchase of Bitcoin?
During the last bear market, MicroStrategy was in an even worse situation than it is now. Their net worth was negative, which is an extremely rare situation for any company. Although some companies have negative net worth under special circumstances (such as issuing a large number of stock options), generally speaking, negative net worth can easily cause market panic. However, MicroStrategy did not liquidate at the time and was not forced to sell Bitcoin, mainly because their debts were still far from due and no one could force them to liquidate immediately.
The interesting thing here is that Michael J. Saylor, the founder of MicroStrategy, holds almost 48% of the voting rights, which makes any attempt to initiate a liquidation proposal very difficult. Therefore, even if the company is in a tight financial situation, creditors and shareholders cannot easily propose a liquidation request.
So, if Bitcoin really falls below the average cost of holding positions, will MicroStrategys stock fall into the so-called death spiral? In fact, this question was raised during the last bear market. At that time, MicroStrategys net assets were negative and the market panic was serious, but the current market should be more experienced. Investors have experienced these fluctuations, so they will not panic as they did then.
In addition, Michael J. Saylor and his team actually have some flexible means to deal with market fluctuations. For example, they can choose to issue bonds, issue additional stocks, or even use the Bitcoin they hold as collateral to borrow money. MicroStrategy currently has about $40 billion in Bitcoin, which means they can pledge these Bitcoins to obtain funds, and even if the price falls, they can avoid being forced to sell by replenishing the collateral.
And their main debt will not mature until 2028 at the earliest, and no one can force them to make adverse decisions before then. For the time being, even if the price of Bitcoin fluctuates, MicroStrategy will not immediately face huge financial pressure and is unlikely to be forced to sell Bitcoin.
More importantly, more and more sovereign funds and institutions around the world have begun to regard Bitcoin as a reserve asset, which is also a major trend. Against this background, the long-term prospects of Bitcoin remain optimistic. As market rumors have it, countries like Abu Dhabi have begun to purchase a large number of Bitcoin ETFs, and this trend indicates that more countries and institutions will enter the Bitcoin market in the future. Although there may be some fluctuations in the price of Bitcoin in the short term, in the long run, MicroStrategys strategy and market trend seem to be consistent. Although their financial situation may encounter challenges in the coming months or even years.
So from our overall observation, although the volatility of Bitcoin prices may indeed bring some short-term pressure to MicroStrategy, considering their debt maturity and market trends, they are currently not at risk of liquidation or forced to sell Bitcoin. On the contrary, they may take advantage of the current market environment to continue to increase their Bitcoin holdings and further consolidate their position in the cryptocurrency field. Behind this series, there are several issues worth thinking about and exploring further:
Can Bitcoin market volatility remain at current levels?
MicroStrategy essentially uses the high volatility of Bitcoin to provide itself with a high-leverage investment tool. But if Bitcoin is gradually accepted by institutional investors and volatility decreases, can the company still maintain its existing high-return strategy? With the launch of Bitcoin ETFs, the long-term Bitcoin price cyclicality has been broken, and the spot price of Bitcoin has become more stable due to decentralized financial derivatives such as ETFs. The price trend of gold after passing through ETFs has provided us with a reference answer. The high volatility of Bitcoin in the past will no longer exist, and the overall change will change from radical to gentle.
How long can MicroStrategy’s financing method last?
At this stage, this model of financing to buy coins is based on the premise that the market is bullish on Bitcoin in the long term. However, if the price of Bitcoin enters a long-term volatile or even falling range in the future, can MicroStrategys financial situation withstand it? If the company continues to raise funds to buy Bitcoin by issuing bonds and issuing additional shares, the market premium for its shares will further narrow. MicroStrategys financing methods are essentially highly dependent on the markets optimism. Once the price of Bitcoin enters a long-term volatile or falling range, in terms of financial pressure, existing debts need to pay interest, and the company must also deal with the dilution of shareholders equity due to the issuance of additional shares. Specific policy environments may also affect MicroStrategys financing model. Certain policies during the Trump administration may have provided companies with a more relaxed financing environment and promoted the establishment of strategic reserves. However, if these favorable factors gradually fade, MicroStrategys financing conditions may not be as good as before.
Is Michael J. Saylor a Bitcoin idealist or a Bitcoin arbitrageur?
Saylors role is actually a combination of an idealist and an arbitrageur. He deeply understands and agrees with the long-term potential of Bitcoin, and is also very good at using market mechanisms to profit for companies and individuals. Taking advantage of the high volatility of Bitcoin, MicroStrategys stock is marketed as a leveraged Bitcoin investment tool. This practice attracts institutional investors who cannot directly invest in Bitcoin or Bitcoin ETFs. These institutions indirectly gain Bitcoin exposure by purchasing MicroStrategy shares. Rather than saying that Michael J. Saylor is a firm believer in Bitcoin, it is better to say that Michael J. Saylor is an arbitrageur of volatility opportunities in the Bitcoin market. The essence of MicroStrategys series of operations is to use Bitcoin to earn volatile market profits in the stock market. In the end, MicroStrategy itself may rely more on market sentiment and Bitcoins price performance than on the long-term value of Bitcoin itself.
5. Wealth Engine or Crypto Frost?
Image source: X@MicroStrategy
MicroStrategys capital operation model is timely, but can MSTRs stock be involved? In my opinion, for people in the encryption industry, the odds of MSTR are greater than directly participating in Bitcoin. MSTR as a whole is more like an accelerator version of Bitcoin.
MicroStrategy is ostensibly a software company focused on business data analysis, but in reality its operating model has completely shifted to hoarding Bitcoin assets. MSTR carries a leverage effect. Because the company holds a large amount of BTC and may increase its holdings by borrowing or issuing bonds, this amplifies the sensitivity of its stock price to changes in Bitcoin prices. When BTC rises, MSTR may rise more, and vice versa.
Its stock price has soared from $68 at the beginning of the year to about $400 now, an increase that even exceeds many well-known companies such as NVIDIA, Palantir and Coinbase. What is the reason behind the amazing performance of MicroStrategys stock? Some people believe that the founder Michael J. Saylor successfully pushed up the stock price through an unlimited funds plug-in operation mode; others criticize this as a Ponzi scheme and worry that it may trigger the next crash in the cryptocurrency market.
MicroStrategys current Bitcoin investment income far exceeds its traditional business revenue. Although its software business revenue has basically not grown in the past few years, and has even declined, MicroStrategy has achieved an increase in the companys overall profits by continuously issuing bonds and diluting equity to raise funds to buy more Bitcoin. MicroStrategy deeply binds stocks to Bitcoin. This operation has benefits but also brings certain risks to the company, because the companys core business cannot bring it significant profits, and all prospects are weighed on the rise in Bitcoin prices. In fact, no one knows whether the future price trend of Bitcoin will be achieved through more financial derivatives + ETFs + strategic reserves to achieve a steady rise, or usher in a wave of big liquidation.
The company further boosted its financing capabilities by issuing interest-free convertible notes. These notes allow investors to convert them into company equity in the future, but the conversion price is much higher than the current stock price. On the surface, this seems to be a deal that is unfavorable to investors, but in fact, note holders enjoy priority liquidation rights and can reduce risks. MicroStrategy can continue to hoard Bitcoin through this financing method, driving a double increase in its stock and Bitcoin prices.
The clever thing about this approach is that it successfully transfers the risk from the company itself to the stock market, by raising funds through the issuance of convertible bonds, and then using the money to buy Bitcoin. When the debt matures, if the companys stock price is high enough, the creditors will choose to convert the debt into stock rather than asking the company to repay the money. In this way, the debt problem can be completely transferred to the stock market, so the overall long-short odds in the stock market are greater than those in the crypto market.
