In history, whenever a traditional industry reaches its peak, there are often some groundbreaking companies that find a unique “production method” in the market’s squeeze, attract capital with unique strategies. These companies rarely produce actual things, but concentrate resources on a core asset-like Shell Oil Company in the past, maintaining valuation through oil reserves, gold mining companies relying on gold mining and reserves to dominate prices. And early this morning, MicroStrategy’s financial report was released, which once again showed such a company: it is not known for “production”, but with a huge investment in BTC, it has broken the traditional valuation rules and become one of the world’s largest and most unique BTCholders.

From Software Company to BTCWhale: The Transformation Journey of MicroStrategy

MicroStrategy, stock code MSTR, was originally built on the foundation of business intelligence software. However, its founder Michael Saylor stepped on the accelerator in 2020 and directly entered the fast lane of Bitcoin (BTC). Since then, Saylor no longer allows the company to stay in traditional ‘production’, but instead sees the potential of BTC as a core asset. He gradually converted the company’s reserve funds into BTC, even risking his own fortune, and transformed MicroStrategy into a ‘Coin Hoarding’ bank for BTC step by step. In Saylor’s eyes, BTC is the digital world’s gold and the anchor of the future of global finance. Some think he’s crazy, while others call him a ‘fanatical evangelist’ for BTC. However, he firmly believes that he is winning the company a ‘new gold standard’.

Saylor does not intend to take the old route. He sees MicroStrategy more like ‘air freight’ compared to traditional ETF’s ‘ground logistics’. MicroStrategy directly purchases BTC through financing methods such as issuing bonds, borrowing, and equity issuance, which is flexible and efficient, and can also chase the rise of the BTC market. This not only makes MicroStrategy a stock symbol, but also a ‘fast target’ in the BTC market, with the company’s Market Cap directly linked to the fluctuation of BTC. Saylor’s actions have sparked some controversy, with well-known investor Peter Schiff even mocking on social platform X, ‘The company doesn’t produce any products, yet achieved a high Market Cap by hoarding BTC.’ He pointed out that MicroStrategy’s Market Cap has surpassed most gold mining companies, second only to Newmont Corporation.

In response, Saylor’s answer is very simple: “BTC is our future reserve asset.” Driven by this firm belief, MicroStrategy has accumulated more than 250,000 BTC and plans to raise $4.2 billion in financing over the next three years to continue to increase holdings. MicroStrategy’s “production” method is not based on traditional material manufacturing, but on building a new financial system around the “infrastructure” of BTC.

Some say Saylor is gambling, but perhaps it’s not just a bet, but a faith. He took an alternative path with a risky move, making MicroStrategy an alternative target in the financial market. As he said, “We don’t produce anything, we just ‘hoard coins’.”

MSTR Latest Financial Report Interpretation: Capital Increase and BTC Reserve Further Addition

1. Overall Financial Report Overview and Financing Plan

MicroStrategy’s financial report released this time presents overall Favourable Information expectations. The company plans to raise $4.2 billion in the next three years to continue to increase its BTC holdings and has completed the repurchase of previously staked BTC. As of the date of the financial report, MicroStrategy holds a total of 252,220 BTC.

Since the end of the second quarter of 2024, the company has added 25,889 BTC at a total cost of approximately $1.6 billion, with an average price of $60,839 per coin. The current total market value of the company is approximately $18 billion, and the total cost of purchasing BTC is $9.9 billion, with an average price of approximately $39,266 per coin. The company also raised $1.1 billion through the sale of Class A common shares and an additional $1.01 billion through the issuance of convertible bonds due in 2028, while repaying $500 million in senior secured notes, releasing all BTC assets from collateral. This release of collateral significantly enhances the company’s financial flexibility and drops its risk in extreme market conditions.

2. Cash Reserves and Future Financing Goals

MicroStrategy currently holds $8.36 billion in cash, providing stable financial support for further purchases of BTC in the future. The company has also announced phased financing targets: $10 billion in 2025, $14 billion in 2026, $18 billion in 2027, totaling $42 billion. CEO Michael Saylor’s plan aims to strengthen the company’s core asset reserves by gradually increasing its BTC holdings, which is undoubtedly seen by the market as Favourable Information rather than negative news.

3. Market Cap与账面价值

As of October 29, 2024, MicroStrategy’s Market Cap is approximately $18 billion, with a book value of $6.9 billion, after deducting $3 billion in cumulative impairment losses. The impairment was not due to MicroStrategy selling BTC, but rather based on book adjustments under current accounting standards. According to accounting rules, if the market price of BTC falls in a quarter, the company must lower the book value of these assets and record an impairment loss. However, even if prices rise later, the book value will not automatically recover, only realizing appreciation upon sale. If future changes in accounting standards (such as FASB’s fair value measurement) are implemented, this issue is expected to be improved.

4. The Flexibility Advantage of BTC as a Core Asset

As a core asset, BTC gives MicroStrategy greater capital flexibility compared to Spot ETF. The company likens its BTC reserves operation to the reserves of an oil company. Just as an oil company deals with unrefined and refined products (such as gasoline, diesel, and aviation fuel), MicroStrategy also views BTC reserves as a capital preservation tool, enabling the company to enhance productivity and implement innovative financial strategies through this core asset.

5. MicroStrategy’s BTC Holding Principles

MicroStrategy has established eight core principles for holding Bitcoin, reflecting its long-term investment strategy and market orientation:

· Continue to buy and hold BTC, focusing on long-term returns;

· Prioritize the long-term value of MicroStrategy common stock;

· Maintain transparency and consistency with investors;

· Using smart leverage to ensure the company outperforms the BTC market;

· Quickly and responsibly adapt to market dynamics, continue to rise;

· Issuance’s innovative BTC supports fixed income securities;

· Maintain a healthy and stable balance sheet;

· Promote BTC to become a global reserve asset.

6. The difference between MicroStrategy and BTCSpot ETF

Compared with BTCSpot ETF, MicroStrategy’s unique feature lies in its financing methods. ETF investors need to actively purchase ETF shares, while MicroStrategy uses various channels such as equity, unsecured or secured debt, convertible bonds, and structured notes to finance and directly increase its holdings of BTC. This ‘equity financing’ model allows the company to actively raise funds to achieve long-term strategic holding of BTC.

The Cycle of Capital and High Premium: MicroStrategy’s Valuation Cipher

The higher the premium rate, the more suitable for large-scale financing.

MicroStrategy’s valuation model relies on the Market Cap premium rate, increasing the BTC (BTC) Holdings through diluted financing to thicken the holdings and boost the per share BTC Holdings, thus driving up the company’s Market Cap. Below is a detailed analysis of this model:

Simplified Analysis of Premium Rate and Thickening Effect

Assuming the price of BTC is $72,000, MicroStrategy holds 252,220 BTC, with total Holdings value of approximately $18.16 billion. With the company’s current Market Cap of $48 billion, MicroStrategy’s Market Cap is 2.64 times the total value of BTCHoldings, resulting in a current premium rate of 164%.

Assuming the company’s current total shares are 10,000 shares, and the BTC open interest per share is about 25.22.

If MicroStrategy plans to raise 10 billion US dollars through additional issuance, then the total share capital after the issuance will become 12,083 shares (calculation method: divide the financing amount of 10 billion US dollars by the current Market Cap of 48 billion US dollars, the result is 0.2083 times, i.e. the share capital will increase by 20.83%, and the total share capital becomes 10,000 shares multiplied by 1.2083, approximately equal to 12,083 shares). In this case, the company can use 10 billion US dollars to purchase approximately 138,889 BTC at a price of 72,000 US dollars, increasing the total BTC holdings to 391,109. In this way, the BTC open interest per share will also increase to 32.37 BTC (dividing 391,109 BTC by 12,083 shares), with an increase of about 28%.

Similarly, if the planned financing is $42 billion

Assuming further that MicroStrategy issues 87.5% of its shares, i.e., financing $42 billion by issuing 8,750 shares, the total share capital after the issuance will increase to 18,750 shares (calculation method: multiply 10,000 shares by 1.875). If the company purchases BTC at a price of $72,000, it can buy approximately 583,333 BTC, bringing the total holding to 835,553 BTC. At this point, the BTC open interest per share will increase to 44.23 BTC (i.e., 835,553 BTC divided by 18,750 shares), an increase of approximately 75% compared to the previous 25.22 BTC.

If this thickening effect is achieved within three years, the average thickening rate per year is 25%.

Of course, when reinvesting, the BTC price may fluctuate, either higher or lower, but this will not change the conclusion of thickening. In the case of MicroStrategy’s extremely high premium rate (currently about 180%-200% Fluctuation), the company should maximize financing by utilizing the premium rate as much as possible. Therefore, although CEO Michael Saylor’s $4.2 billion financing plan initially caused market panic, market sentiment quickly recovered, indicating the company’s clear understanding of the current pattern and making a rational decision to maximize shareholder equity.

The logic behind MicroStrategy’s advantages and high premium rates

Many investors may wonder why the market is willing to buy MicroStrategy’s ATM or convertible bonds at a high premium, rather than directly purchasing BTC ETF? This involves several unique advantages of MicroStrategy:

Continuously Increasing Profits

By continuously increasing its BTC reserves through financing, MicroStrategy has achieved an annualized increase of 6%-10% in its reserves, and has realized an annualized increase of 17% since 2024. Under the current high premium financing model, the annualized increase is expected to exceed 15%. Based on a valuation of 10 to 15 times, MicroStrategy’s premium corresponds to a valuation of 150% - 225%.

Volatility and Market Bridge

Michael Saylor believes that MicroStrategy serves as a bridge between the traditional Capital Market and the BTC market. The current BTC Market Cap is about $1.4 trillion, with a relatively low penetration rate. If the penetration rate increases, even if only 1% of the funds from the global $300 trillion bond market are allocated to BTC, it could bring about $3 trillion in potential incremental funds to MicroStrategy. In addition, the convertible bonds issuance not only provides some downside protection but also offers potential options for pumping BTC prices.

Conclusion: The self-enhancing effect of high premium rate in the Bull Market

In the Bull Market environment, MicroStrategy’s valuation model and high premium financing model have formed a self-reinforcing positive cycle. The higher the premium rate, the larger the financing amount of the company, thereby increasing the per share BTC reserves and further pushing up the company’s Market Cap. This market effect is like a snowball rolling, especially in the case where the BTC price is expected to rise to the range of $90,000-100,000, MicroStrategy may be able to continue to accelerate under the escort of a high premium rate.

Michael Saylor’s bet and the market’s response seem to be heralding some kind of subtle game between TradFi and digital asset. In this dual contest of capital and technology, will MicroStrategy achieve a financial revolution or just be a flash in the pan? What we are witnessing may be a certain omen of future financial change.

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