In the history of Wall Street, there has never been a shortage of legends, but the strategic transformation of MicroStrategy Bitcoin Treasury Company is destined to become a unique new legend. .

A Bitcoin strategy that has attracted global attention

In 2020, the new crown epidemic triggered a global Liquidity crisis, countries adopt loose money to stimulate the economy, leading to currency depreciation and increased inflation risks.

Michael Saylor re-evaluated the value of Bitcoin during the COVID-19 epidemic. He believes that when the money supply is growing at 15% per year, people need a safe haven asset that is not tied to fiat cash flows. Therefore, he chose a Bitcoin strategy for MicroStrategy.

Compared with the BTC ETF or other Spot Bitcoin ETPs launched by companies such as BlackRock, MicroStrategy's Bitcoin strategy is more aggressive. It purchases Bitcoin through the company's idle funds, issuance of convertible bonds, additional share issuance and other financing methods. The company itself obtains the potential income from the rise of Bitcoin while bearing the potential risk of the fall of Bitcoin, while ETF/ETPs focus more on price tracking .

MicroStrategy’s funding sources and Bitcoin purchase process

MicroStrategy mainly uses four channels Raise money to buy Bitcoin.

1. Use your own funds to purchase

The first three investments, the micro strategy is Invest the idle funds in your books into purchases. In August 2020, MicroStrategy spent US$250 million to buy 21,400 Bitcoins; in September, it invested US$175 million to buy 16,796 Bitcoins; in December, it invested US$50 million to buy 2,574 Bitcoins.

2. Issue convertible senior notes (Convertible Senior Notes)

In order to buy more Bitcoin, micro-strategy adoption beginsFinancing currency purchases by issuing convertible bonds.

Convertible senior bonds are financial instruments that allow investors to convert the bonds into company stock under certain conditions. Such bonds feature low, or even zero, interest rates while setting a conversion price that is higher than the current stock price. Investors are willing to buy such bonds primarily because they offer downside protection (i.e., principal and interest will be collected at maturity) as well as potential gains if stock prices rise. The interest rates of several convertible bonds issued by MicroStrategy are mostly between 0% and 0.75%, which shows that investors are actually confident in the rise of MSTR's stock price and hope that the bonds will be converted into stocks to earn more income.

3. Issuance of Senior Secured Notes

In addition to convertible senior bonds , MicroStrategy also issued a US$489 million senior secured bond due in 2028 with an interest rate of 6.125%.

Senior secured bonds are a type of secured bond with lower risk than convertible senior bonds, but these bonds only have fixed interest income. This batch of priority guaranteed bonds issued by MicroStrategy has chosen to be repaid in advance.

4. At-the-Market Equity Offerings

With the MicroStrategy’s Bitcoin strategy has initially yielded results. MSTR’s stock price has continued to rise, and MicroStrategy has adopted more financing methods through market price stock issuance. Funding obtained this way is lower risk because it is not debt, there is no pressure to repay, and there is no foreseeable repayment date.

MicroStrategy has signed open market sales agreements with agency structures such as Jefferies, Cowen and Company LLC and BTIG LLC. Pursuant to these agreements, MicroStrategy may, from time to time, issue and sell shares of Class A common stock through these agents. This is what the industry calls an ATM.

Market-priced stock issuance is more flexible, and micro-strategies can choose the timing to sell new shares based on secondary market conditions. Since the issuance of shares dilutes the equity of existing shareholders, its correlation with the price of Bitcoin and the increase in the currency content of each MSTR share have caused the market to have a complicated reaction to this move, and the MSTR stock price as a whole has shown high volatility.

MicroStrategy’s process of purchasing Bitcoin through the above four methods is as follows:

Produced by: IOBC Capital

Corresponding to the price chart of BTC, MicroStrategy’s specific purchase history is as follows Picture:

Source: bitcointreasuries.net

As of On December 30, 2024, MicroStrategy invested a total of approximately US$27.7 billion and purchased 444,262 Bitcoins, with an average holding price of US$62,257 per coin.

Several key issues about micro-strategy "smart leverage" to buy Bitcoin

For MicroStrategy’s “Intelligent Leverage” strategy for buying Bitcoin has been quite controversial in the market. Regarding several key issues hotly discussed in the market, let me share my thoughts:

1. Is the leverage risk of MSTR high?

Let me talk about the conclusion first, which is not too high.

According to the information disclosed by MSTR in the Q3 2024 financial report conference call, MSTR’s total assets at that time were approximately US$8.344 billion, because the book value of Bitcoin in this financial report (Carrying Value) was only US$6.85 billion (there were only 252,220 coins at the time, calculated based on a price of US$27,160). Total debt is about $4.57 billion, so the corresponding debt-to-equity ratio is 1.21.

We do not discuss this accounting standard. We only consider the data at the time of actual sale. The actual sale reflects the latest market price. If calculated based on the latest market price of Bitcoin on September 30, 2024 ($63,560), the proportion held by MSTRThe actual market value of Bitcoin is US$16.03 billion, and the corresponding MSTR debt-to-equity ratio is only 0.35.

Let’s look at the data as of December 30, 2024.

As of December 30, 2024, MicroStrategy's total outstanding liabilities were $7,273.85 million, as follows:

Produced by: IOBC Capital

As of December 2024 On the 30th, MicroStrategy held 444,262 Bitcoins, worth $42.25 billion. Assuming that the rest of MicroStrategy's assets remain unchanged (i.e., $1.49 billion), MSTR's total assets are $43.74 billion and liabilities are $7,273.85 million. At this time, MSTR's debt-to-equity ratio is only 0.208.

Let’s look at the debt-to-equity ratios of the leading listed companies in the US stock market - Alphabet 0.05, Titter 0.7, Meta 0.1, The Goldman Sachs Group 2.5, JPMorgan Chase & Co . 1.5.

MicroStrategy is a company that has transformed from the software industry to the financial industry. This debt-to-equity ratio is still healthy.

2. Under what circumstances will these convertible bonds become an unbearable burden in the future?

Let me talk about the conclusion first. If MicroStrategy does not continue to issue convertible bonds, then Bitcoin will fall below 16,364 US dollars in the long term, and MicroStrategy holds 444,262 Bitcoins. The value will be lower than the total amount of its convertible bonds of US$7.27 billion. If the micro-strategy only uses ATM financing and idle funds to buy coins, as the number of micro-strategy Bitcoin positions increases, the "insolvent" price line can become even lower.

If micro-strategy continues to issue convertible bonds crazily to buy Bitcoin when Bitcoin is high, and Bitcoin has entered a bear market. The decline in Bitcoin prices has caused the value of the Bitcoin held by the micro-strategy to be lower than the total amount of its convertible bonds, which will also cause MSTR's stock price to fall into a downturn, which will affect its refinancing ability and debt repayment ability, and then make the convertible bonds available. Convertible debt became an unbearable burden.

Micro-strategy convertible bonds, bond holders have the right to convert their bonds into MSTR stocks, and are divided into 2 stages: 1. Initial stage ——If the trading price of the bond drops by >2%, the creditor can exercise the right to convert the bond into MSTR shares and sell them back; if the trading price of the bond is normal or even rises, the creditor can resell the bond in the secondary market at any time to pay back the capital. . 2. Later stage - when the bond is about to mature, the 2% rule does not apply, and the bondholder can take back the cash and walk away, or directly convert the bond into MSTR shares.

Since the convertible bonds issued by MicroStrategy are low-interest or even zero-coupon bonds, it is obvious that what creditors want is the conversion premium. If on the repayment date, MSTR's stock price has increased to a certain extent compared with the price at the time of initial financing, then the creditor is more likely to consider debt-for-equity swaps. If MSTR's stock price drops to a certain extent compared with the price when it was originally financed, creditors will consider demanding principal and interest.

If the creditor does not choose to convert to MSTR stock and ultimately needs to repay the creditor, MicroStrategy also has multiple options:

Continue to issue new shares and obtain funds for repayment;

Continue to issue new debt and repay old debt with new debt; (September 2024 Already done this)

Sell some bitcoins to repay the loan.

So, at present, it is unlikely that micro-strategy will fall into an "insolvent" situation.

3. Why do investors start to care about the currency content per share of MSTR?

Let’s talk about the conclusion first. The currency content per share will determine MSTR’s net assets per share.

Whether it is the issuance of convertible bonds or ATM, financing is achieved by diluting equity. The purpose of financing is to increase Bitcoin reserves. For MSTR shareholders, dilution of share capital is a negative, and is not a good thing in the traditional sense.thing. The story that MicroStrategy’s management tells MSTR shareholders is – BTC Yield KPI.

Essentially, as long as the market value of MSTR is higher than the total value of BTC held, that is, there is a market value premium rate, then the MSTR equity capital is diluted to buy BTC, This will increase the currency content of each MSTR share. The increase in the currency content of MSTR means that the net assets per share of MSTR are increasing, so for shareholders, it is still worth doing to dilute the share capital to raise funds to buy Bitcoin.

Currently, MicroStrategy holds 444,262 BTC, with a total position value of approximately US$42.256 billion. With the current market value of MSTR at US$80.37 billion, the market value of MSTR is 1.902 times the value of Bitcoin positions, which means the current premium rate is 90.2%. The current total share capital of MSTR is 244 million shares, and the corresponding BTC holdings per share are approximately 0.0018.

This is the core of the so-called "smart leverage", which turns the difference between the market value of one's own company and the market value of Bitcoin positions into a capital operation advantage.

4. Why have micro-strategies been more aggressive in buying Bitcoin in the past two months?

Let me talk about the conclusion first, it may be because MSTR's stock price is very high.

Micro-strategy has significantly increased the scale of financing to buy coins in the past two months. In November and December 2024, MicroStrategy invested a total of US$17.69 billion (accounting for 63.8% of the total investment) and purchased 192,042 Bitcoins (accounting for 43.2% of the total purchases) through ATMs and the issuance of convertible bonds. Only US$3 billion of this amount is convertible bonds, and the remaining US$14.69 billion is financed through ATMs.

Overall, the entire process of micro-strategy strategic allocation of Bitcoin has the characteristics of fixed investment in the time dimension; but in terms of quantity and amount, it seems to be in a bull market Buy more aggressively than in a bear market.

I can't understand this feature and can only hazard a guess that it may be because MSTR's stock price rises higher in a bull market. In August 2024, MSTR's stock price increased three times after high returns, and its stock price increased more than four times throughout the year, while Bitcoin's increase this year was only 2.2 times.

MicroStrategy's CEO talked about a beautiful "42B plan" in the Q3 2024 financial report conference call.

British writer Douglas Adams said in " According to "The Hitchhiker's Guide to the Galaxy", the supercomputer "deep pondering" the "ultimate answer to the questions of life, the universe, and everything" gave a result of 42.

MicroStrategy believes that this is a magic number, so it proposed a 42B financing plan. 21 is also a magic number, and the maximum total amount of Bitcoin is 21M. Therefore, MicroStrategy plans to issue 21B ATM + 21B in the next three years Fixed Income, used to continue to accumulate Bitcoin

Assume that MicroStrategy ultimately raises US$42 billion through the issuance of additional shares. Assuming that the additional issuance is carried out at a stock price of US$330, the total share capital after the additional issuance will become 371.3 million shares. Assume that MicroStrategy sells shares at 10wU By buying Bitcoin at the average price, the company can add 420,000 Bitcoins, bringing MicroStrategy's total holdings to 864,262 Bitcoins. At that time, the currency content per share will increase to 0.00233, an increase of approximately 29.4%. MSTR The total market value is 122.53 billion US dollars, and the total value of BTC positions is 86.4 billion. In this case, the market value premium rate still exists.

5. After micro-strategy. , what other driving force does Bitcoin have to rise?

Let me talk about the conclusion first. In addition to the listed companies that are driven by micro-strategies to buy Bitcoin, there are only more that can be thought of at present. Level strategic reserve, but do not have high expectations in this bull market

The main reasons for the rise of Bitcoin in this cycle are the following:

1. Long Term Holder who has a strong consensus on Bitcoin

Bitcoin does not need a reason for its long-term rise Yes, this matter is in BTCer It is as natural as a monkey climbing a tree or a mouse digging a hole, because it is digital gold.

After Bitcoin fell below $16,000, it was the most mainstream at the time. The full range of Antminer S17 mining machines are close to the shutdown price, as are Shenma M30S and Hippo H2., Antminer T19 and other mining machines have also fallen into the shutdown currency price range. In this price range, even if nothing happens, this rebound will happen. The bull-bear transition is like a basketball free-falling from a high place. After hitting the ground, there will be multiple rebounds that weaken in sequence.

Source: glassnode

As can be seen from the picture above, at the end of 2022, Long Term Holder continued to increase positions.

After more than ten years of development, the Bitcoin consensus has become strong enough. On-market investors and Long Term Holders have a consensus around the shutdown currency price of mainstream mining machines. .

2. ETF brings incremental funds to traditional financial markets

Since the adoption of BTC ETF , with a total net inflow of 52.86w BTC. In this bull market, ETFs brought nearly 36B of incremental buying to Bitcoin and 2.6B of incremental buying to ETH.

Source: coinglass.com

In addition, the approval of BTC ETF (and ETH ETF) will also have a driving effect, and more traditional financial institutions will begin to pay attention to and deploy the Crypto field.

3. Micro-strategy continues to buy, and many listed companies follow suit, Davis double-clicks

According to Bitcointreasuries data, as of December 30, 2024, there were 149 entities holding more than 2.95w Bitcoin in total. And this data is still growing rapidly in the near future.

Source: bitcointreauries.net

Among these entities holding Bitcoin, 73 are listed companies and 18 are private companies., 11 , 42 ETFs or Funds, 5 DeFi protocols.

MicroStrategy is the first public company to adopt a "Bitcoin Treasury Company" strategy, but it is not the only one. Listed companies such as Marathon Digital Holdings, Riot Platforms, and Boyaa Interactive International Limited have also implemented this strategy. But micro-strategy still has the greatest impact.

4. Level strategic reserve

There are already some governments holding Bitcoin. The specific details are as follows:

Among these, I am afraid only El Salvador (El Salvador) is A true BTC Holder. El Salvador started buying Bitcoins in 2021, buying one every day. So far, he has held 6,002 BTCs, with a market value of over US$560 million.

This will in turn lead to more strategic reserves of Bitcoin.

Micro-strategy’s Bitcoin strategy is not only a business experiment in corporate transformation, but also a major innovation in financial history. Through sophisticated capital operations, smart leverage, and deep insights into the value of Bitcoin, it not only won itself a brilliant growth in market value, but also pushed Bitcoin deeper into the perspective of traditional finance, penetratingly breaking the encryption Barriers between assets and mainstream capital markets.

This bold attempt of micro-strategy may be just the prelude to the legend of Bitcoin, or it may be just a small and dispensable step in the true rise of Bitcoin. But it could be a big step in a new era of finance.