MSTR (MicroStrategy), rose from $69 at the beginning of the year to a high of $543 last week, with a rise far exceeding Bitcoin! What impressed me is that while BTC was being pulled back due to the election, MSTR continued to rise. This made me rethink its investment logic: it is not just riding on the concept of BTC, but has its own gameplay and logic.
MSTR’s core gameplay: issuance convertible bonds to buy BTC
MSTR was originally in the BI (Business Intelligence Reporting System) business, but that’s already a sunset industry. Now its core play is: raising funds through issuance convertible bonds, buying a large amount of BTC, and making it an important part of the company’s assets.
- What is a convertible bond?
Simply put, the company finances through bond issuance, and investors can choose to receive their principal and interest at maturity, or convert the bonds into the company’s stock at a predetermined price.
—If the stock price rises, investors will choose to convert their shares, and the shares will be diluted accordingly.
—If the stock price does not rise, investors choose to withdraw their principal and Interest, and the company needs to pay a certain cost of capital.
- The operation logic of MSTR:
—Use the money raised by issuance to buy BTC.
— In this way, MSTR’s BTC holdings continue to increase, and the BTC value per share is also rising.
For example, according to the data at the beginning of 2024, the BTC corresponding to every 100 shares rose from 0.091 to 0.107, and rose to 0.12 on November 16th.
It will be clearer to understand in conjunction with the following figure: the relationship between the BTC held by the convertible bonds and the diluted shares that can be increased by the issuance in the first three quarters before 2024 of MSTR.
—In the first three quarters before 2024, MSTR increased its BTC Holdings from 189,000 to 252,000 (a rise of 33.3%) through convertible bonds, while the total number of shares only diluted by 13.2%.
—The BTC corresponding to every 100 shares has risen from 0.091 to 0.107, and BTC Holdings equity is gradually increasing. We calculate based on the beginning of the year price: 100 shares of MSTR stock price is ($69) $6900, 0.091 BTC ($42,000) price is $3822, compared to the value of directly buying BTC (-45%), it seems not cost-effective. However, according to this rise model, the BTC quantity held per share will increase continuously through constant bond issuance.
- Latest data:
On November 16th, MSTR announced an acquisition of 51,780 BTC for $4.6 billion, bringing the total holdings to 331,200 BTC. At this rate, the BTC value per 100 shares is approaching 0.12. From a coin perspective, the BTC ‘equity’ of MSTR shareholders is continuously increasing.
MSTR is the “golden shovel” of BTC
From a pattern perspective, MSTR’s gameplay is similar to using Wall Street’s leverage to mine BTC:
—Continuously issuing bonds to buy BTC, increasing the BTC Holdings per share through dilution of shares;
—For investors, buying MSTR shares is equivalent to indirectly holding BTC and also enjoying the leverage benefits brought by the pump in BTC price.
I believe that smart friends can already see that the gameplay here is quite similar to Ponzi, using newly raised funds to subsidize the rights of old shareholders, and the continuous fundraising continues round after round.
- How long will this pattern continue?
—Increasing fundraising difficulty: If the stock price does not rise, subsequent convertible bond issuance will become difficult, and the model will be difficult to sustain.
—Over-dilution: If the speed of share issuance is higher than the speed of BTC holdings, shareholders’ equity may shrink.
—Homogenization of patterns: more and more companies are starting to imitate the MSTR pattern. After the competition intensifies, its uniqueness may be lost.
The logic of MSTR and the future risks
Although MSTR’s logic is somewhat like a Ponzi scheme, from a long-term perspective, it is strategically significant for major US capital to hoard BTC. The total supply of BTC is only 21 million, and the US national strategic reserve may account for 3 million. For major capital, ‘Coin Hoarding’ is not only an investment behavior but also a long-term strategic choice.
But currently, the risk of MSTR outweighs the return, so everyone should be cautious in their operations!
—If the BTC price pullback, MSTR’s stock price may suffer a greater decline due to its leverage effect;
—Whether the future can continue to maintain a high rise mode depends on the fundraising ability and market competitive environment.
Uncle’s Reflection and Cognitive Upgrade
In 2020, when MSTR first hoarded BTC, Uncle remembered that BTC rebounded from $3000 to $5000. Uncle thought it was expensive and didn’t buy, while MSTR bought a large amount at $10,000. At that time, Uncle still thought they were foolish, but BTC rose all the way to $20,000, and the clown turned out to be Uncle himself. Missing MSTR this time made Uncle realize that the operating logic and cognitive Depth of American capital giants are worth studying seriously. Although MSTR’s model is simple, it represents a strong belief in the long-term value of BTC. It’s not scary to miss out; what’s important is to learn from it and upgrade one’s own cognition.
