Written by: 0xjs@金财经

Bitcoin breaks through 80,000 US dollars! Bitcoin tops $90,000! Bitcoin breaks through $95,000! Bitcoin breaks through $99,000!

Obviously, Bitcoin is bound to break through the $100,000 mark soon.

Common sense tells us that the direct reason for the sharp rise in prices is that someone is buying in large quantities with real money, after all, "Money Talks".

In this round of crypto bull market, crypto tokens have been severely differentiated, with the two most eye-catching sectors being Bitcoin and Solana. Solana's rise is mainly driven by the influx of crypto players into Meme, while Bitcoin's rise, buying funds mainly come from the US Bitcoin ETF and some listed companies, especially MicroStrategy. In this article we focus mainly on MicroStrategy.

Golden Finance reporters spent one night on November 21st reviewing the documents submitted by MicroStrategy since 2021 on the official website of the US SEC, and deeply dissected MicroStrategy’s behavior and funding sources for buying Bitcoin. The conclusion is that MicroStrategy is an enhanced version of "Grayscale + Luna".

First take a look at the overall situation of MicroStrategy, then break down the source of funds used by MicroStrategy to buy Bitcoin, and finally compare Grayscale and Luna. the following.

MicroStrategy is not afraid of bulls and bears: Spending more than 16 billion US dollars to firmly buy Bitcoin

MicroStrategy has implemented the Bitcoin reserve strategy in September 2020, and has been resolutely implementing the Bitcoin reserve strategy through cycles in the past 4 years without fear of bulls and bears. , such as buying Bitcoin for more than $59,000 in April and November during the 2021 bull market.

MicroStrategy continues to buy BTC

Golden Finance reporter statistics found that as of November 22, 2024 , MicroStrategy has spent a total of 16.58 billion US dollars to buy Bitcoin, currently holds 331,000 Bitcoins, and the market value of the Bitcoins it holds is nearly 33 billion US dollars.

Since the successful issuance of the Bitcoin ETF in January 2024, the Bitcoin ETF has managed more than 1.24 million Bitcoins, assets under management have exceeded US$120 billion, and the total net capital inflow has been approximately US$30.3 billion. Bitcoin ETFs are the investment targets of many investors, not from a single investor.

As far as the eye can see, MicroStrategy may be the single entity that spends the most on buying Bitcoin.

So the question is, where did so much of the funds for MicroStrategy to buy Bitcoin come from?

Golden Financial ReporterLooking through MicroStrategy's report submitted to the U.S. SEC, its funding mainly comes from two sources: Convertible Senior Notes and At-the-Market Equity Offerings.

Among them, Convertible Senior Notes are for qualified institutional investors, and At-the-Market Equity Offerings are for the secondary market.

Convertible Senior Notes: US$7.26 billion qualified institutional investors

The following are the notes issued by MicroStrategy since 2020. In addition to the US$500 million senior secured debt issued in June 2021, the rest All are convertible senior notes (Convertible Senior Notes).

Among them, MicroStrategy’s newly issued $3 billion in convertible bonds on November 21, 2024 can be used to buy Bitcoin at any time. Maybe in the past few days, when MicroStrategy uses the US$3 billion to buy Bitcoin, Bitcoin will break through US$100,000.

Understand what Convertible Senior Notes are, and you will find that it is really a good financial tool.

A so-called convertible senior note is a special type of debt security that contains an option to convert the note into a predetermined number of shares of the issuer. If the stock price rises, it can be converted into shares. If the stock price is low, the principal and interest will be paid according to the debt. Moreover, the senior convertible notes are senior to all other debt securities issued by the same organization and may receive priority compensation. Therefore, it is a bond with high yield at the top and guaranteed bottom at the bottom.

Importantly, convertible senior debt generally comes with mandatory redemption provisions. The issuer may initiate compulsory redemption after the prohibition of redemption period specified in the terms or when the early redemption clause is triggered. Investors need to convert the convertible bonds into company shares before the specified redemption date, otherwise the issuer has the right to forcibly redeem the convertible bonds at the face value of the bond plus accrued interest. In most cases, investors will actively convert into stocks.

Take the 2025 Convertible Notes that have been redeemed by MicroStrategy as an example. The expiration date of the 2025 Convertible Notes is December 15, 2025. However, MicroStrategy issued an announcement on June 13, 2024, requiring 2025 Convertible Notes holders to choose to pay every 1,000 before 5:00 pm New York time on July 11, 2024.The U.S. dollar principal amount of the notes is convertible at an applicable conversion rate (reflecting a conversion price of $397.99 per share) for 2.5126 shares of MicroStrategy Class A common stock. Otherwise, MicroStrategy will forcefully redeem all outstanding notes on July 15 at a redemption price equal to the principal + accrued and unpaid interest.

The stock price of MicroStrategy that day was around US$1,300 (MicroStrategy completed a 1:10 stock split on August 8, and the price of US$1,300 was the price before the split). Obviously creditors will choose to convert debt into stocks. The creditors complete the arbitrage after getting the shares.

It can be said that the most important motivation behind convertible bonds is that the issuer allows investors to actively choose to convert debt into stocks, so that the issuer does not have to use cash to repay debt.

At-the-Market Equity Offerings: Nearly $10 billion in the secondary market

The following is MicroStrategy's market equity offering data since 2020. In the past four years, MicroStrategy has raised a total of US$9.8235 billion directly through the issuance of new shares in the secondary market, and all of these funds have been used by MicroStrategy to buy Bitcoin.

The so-called market price stock issuance (ATM Equity Offering) refers to the subsequent stock issuance conducted by a listed company to raise funds after its IPO. In an ATM issuance, a listed company gradually sells newly issued shares to the secondary trading market at the current market price over a period of time through a designated broker. The broker sells the issuing company's stock on the open market for cash proceeds and then delivers the proceeds to the issuing company.

Let’s take MicroStrategy’s ATM Equity Offering as an example. On August 1, 2024, MicroStrategy entered into sales agreements with brokers TD Securities (USA), The Benchmark Company, BTIG, Canaccord Genuity, Maxim Group and SG Americas Securities (the "August 2023 Sales Agreement"). Under the agreement, MicroStrategy may, from time to time, offer and sell shares of its Class A common stock through a sales agent for an aggregate offering price of up to $2 billion. According to the 8-K filing provided by MicroStrategy to the U.S. SEC on November 11, 2024, MicroStrategy issued a total of 7,854,647 new shares, receiving a total of US$2.03 billion, all of which purchased 27,200 Bitcoins.

October 30, 2024, MicroStrategy released its 21/21 plan, saying it will raise US$42 billion in capital over the next year, including US$21 billion in equity and US$21 billion in fixed-income securities, to invest in Bitcoin. MicroStrategy disclosed on the same day that MicroStrategy has reached sales agreements with TD Securities (USA), Barclays Capital, The Benchmark Company, BTIG, LLC, Canaccord Genuity, Cantor Fitzgerald & Co., Maxim Group, Mizuho Securities USA, and SG Americas Securities, and the market price issuance of 210 billion in MicroStrategy stock. The 8-K filing submitted by MicroStrategy to the SEC on November 18, 2024 showed that between November 11 and 17, MicroStrategy sold 13.594 million shares, earning approximately US$4.6 billion, and purchased 51,780 Bitcoins in total.

According to MicroStrategy’s plan, brokers still have about $16.4 billion in newly issued shares of MicroStrategy available for sale.

Why is MicroStrategy said to be an enhanced version of "Grayscale+Luna"

Now that you are familiar with MicroStrategy's "convertible bonds" and "market stock issuance" gold fingers, think about it again, are they very similar to the previous bull market? Grayscale and Luna, and they are enhanced versions.

Grayscale Vs. Convertible Bonds:

Looking back at Grayscale’s operating mechanism before it was converted into an ETF, Grayscale Trust shares are only issued to qualified investors. Investors use over-the-counter cash to purchase GBTC shares (Grayscale Trust’s underlying The corresponding Bitcoin assets) or physical Bitcoins need to be exchanged for GBTC stocks, and the arbitrage will be completed after public trading for 6 months. At the same time, GBTC shares are isolated from the underlying Bitcoin assets and cannot be redeemed by investors.

MicroStrategy’s convertible senior notes (Convertible Senior Notes) are also open to qualified investors. Investors use over-the-counter cash to buy convertible bonds and convert them into MicroStrategy stocks to complete arbitrage when they are forced to redeem. Convertible Senior Notes are also isolated from MicroStrategy’s Bitcoin.

In the Bitcoin bull market in 2020 and 2021, the premium of GBTC attracted a large amount of arbitrage funds, and GBTC once accumulated to 6There were more than 50,000 Bitcoins, which was called a "flag bull market" by many people in the industry at the time.

In this bull market, MicroStrategy has attracted more than US$7 billion in qualified institutional investor funds through convertible bonds, and MicroStrategy’s 21/21 plan is also preparing to issue more bonds.

The difference is that MicroStrategy's convertible bonds have a long maturity date. The latest maturity date is in 2027, which is enough to survive the new cycle. If necessary, MicroStrategy can compulsorily redeem the convertible bonds and allow investors to convert the convertible bonds into newly issued shares of MicroStrategy at almost zero cost, without MicroStrategy actually having to pay back the money. Even if it is not redeemed until the maturity date, MicroStrategy can also issue new convertible bonds to replace the old convertible bonds, just like MicroStrategy used the cash of 2028 Convertible Notes issued on September 20, 2024 to redeem 2028 Secured Notes. Obviously, MicroStrategy's convertible bonds are more robust.

Luna Vs. Market Equity Issuance:

In Luna’s case, burning $1 of LUNA can mint $1 of the algorithmic stablecoin UST. As long as the price of LUNA rises, more UST can be minted. With more UST, more Bitcoins can be purchased as reserves, stabilizing 1UST=1USDT. Luna is directly marketed to ordinary investors without permission.

MicroStrategy's market-priced stock issuance is very similar to this, and is also directly targeted at ordinary investors in the secondary market. The higher MicroStrategy's stock price, the more dollars it can receive through market share issuances, and more dollars can buy more Bitcoins. "Left foot on right foot" all the way up. After the Bitcoin ETF established a bull market in January 2024, MicroStrategy's net asset premium (market price per share/corresponding Bitcoin value -1) climbed all the way to 2.7. MicroStrategy currently holds a total of 331,200 Bitcoins, worth approximately US$32.84 billion, and MicroStrategy's total market value once exceeded US$100 billion.

Luna and UST can be minted in both directions. If UST is decoupled, arbitrageurs can buy UST at a discount and mint LUNA at 1UST=1USDT, forming a "death loop" and causing LUNA to collapse. In fact, if the Luna Foundation LFG had bought more Bitcoin earlier in the up cycle (it only bought $1.5 billion in Bitcoin), and if UST to LUNA could be temporarily minted in one direction, Luna probably would not have collapsed.

MicroStrategy goes one step further. MicroStrategy’s market share issuance is one-way., it will not fall into a death spiral, and the cost is almost zero. MicroStrategy is clearly more secure than Luna. Even during the bear market in 2022, MicroStrategy's net asset premium will be as low as 60%.

Source: mstr-tracker

As long as someone is willing to buy MicroStrategy shares issued at market price, MicroStrategy will The more Bitcoins bought during its high NAV premium period, the thicker MicroStrategy’s safety cushion becomes. Used to the extreme, MicroStrategy's market value is completely equal to its Bitcoin market value, and there is no risk.

To sum up, can it be said that MicroStrategy is an enhanced version of "Grayscale+Luna"?

Conclusion: Triple Maximism

At the Bitcoin Conference held in Nashville at the end of July 2024, MicroStrategy CEO Michael Saylor delivered a keynote speech on "Bitcoin Revolution".

After 4 years of practice, he proposed a methodology for individuals, companies, institutions and to deal with the Bitcoin revolution. He proposed a triple maximalist strategy. For companies, it means buying Bitcoin through three channels - cash flow, issuing stock when stock prices are overvalued, and issuing debt when interest rates are low.

That’s what he said, and that’s what he did.

MicroStrategy has accumulated 331,200 Bitcoins.