Author: Tanay Ved, Coin Metrics; Compiler: 0xjs@金财经

Key points of this article:

MicroStrategy is a Bitcoin treasury company and a Bitcoin leverage agent that can amplify the upward and downward prices of BTC trend.

The company currently holds 386,700 BTC (worth approximately $36 billion), accounting for 1.9% of Bitcoin’s current supply, making it the largest corporate holder of BTC in the world.

MicroStrategy funded its Bitcoin acquisitions through convertible bonds, taking advantage of low borrowing costs and higher equity premiums during the bull market to expand its BTC holdings.

Introduction

Bitcoin’s post-election momentum has brought its price close to the $100,000 mark for the first time in its 15-year history. While the majority of Bitcoin’s supply remains self-custodial, Bitcoin’s growing maturity has also opened up more accessible investment avenues, including “crypto stocks” – which provide exposure to Bitcoin and other digital assets through traditional brokerage accounts or agent's publicly traded stock. These companies range from Bitcoin miner Marathon Digital (MARA) to full-stack operators Coinbase (COIN) and MicroStrategy (MSTR), the latter of which is the largest corporate holder of Bitcoin with 386,700 BTC in its vaults. The launch of spot Bitcoin (BTC) and Ethereum (ETH) ETFs this year further broadens access to institutional investors.

In this week’s Coin Metrics State of the Network report, we analyze MicroStrategy’s performance, its Bitcoin holdings and its role as a leveraged proxy in the crypto-stock space, explore its acquisition strategy and its Risks and rewards of the approach.

Crypto Stock Landscape

While MSTR is not part of the S&P 500, it has returned more than 700% since 2022 and 488% year-to-date, outpacing the returns of other stocks in the S&P 500. Performance. It has far outperformed major crypto stocks and tech stocks like Coinbase (COIN) or Nvidia (NVDA), thanks to its unique role as a "Bitcoin vault company." Therefore, the strategy behind its performance deserves a closer look.

Source: Google Finance

MicroStrategy: Software company or Bitcoin hoarding machine?

Some may be surprised to learn that MicroStrategy was founded in 1989 as an enterprise software company focused on business intelligence. However, in 2020In August, co-founder and then-CEO Michael Saylor made a bold shift by making Bitcoin the company’s primary reserve asset as part of a “new capital allocation strategy.” This turns MicroStrategy into a Bitcoin hoarding machine. Four years later, it has become the largest single corporate holder of Bitcoin, with 386,700 BTC (worth approximately $36 billion) and a market capitalization of approximately $90 billion. MicroStrategy's Bitcoin holdings far exceed those of other corporate vaults, holding 12 times more than miners like Marathon Digital ( MARA ) and 34 times more than Tesla ( TSLA ).

Source: Coin Metrics Network Data Pro and BitBo Treasuries

MicroStrategy’s last purchase was on November 24 On the same day, 55,500 BTC were purchased and currently hold 386,700 BTC, with an average cost of $56,761, accounting for approximately 1.9% of the current supply of Bitcoin. Only Bitcoin spot ETFs exceed this level, with the Bitcoin spot ETFs collectively holding about 5.3% of the supply, three times as much as MicroStrategy. This strategy effectively turns MicroStrategy into a Bitcoin investment vehicle, serving as a leveraged investment in Bitcoin. Michael Saylor himself describes the company as a "treasury operation that securitizes Bitcoin, providing 1.5x to 2x leveraged equity." As shown in the chart below, MicroStrategy's performance relative to Bitcoin reflects this approach, amplifying during the rally Gains, magnify losses during declines.

Source: Coin Metrics reference interest rate and Google Finance

Compared with BTC, the essence of this leverage method This will increase the volatility of MSTR, usually amplifying the price fluctuations of BTC by 1.5 to 2 times. In addition to its Bitcoin exposure, MicroStrategy's share price is affected by broader stock market trends and investor sentiment toward Bitcoin, making it a high-risk, high-reward proxy for the asset's performance.

Source: Coin Metrics Market Data Flow and Google Finance

How MicroStrategy builds its BTC purchase financed?

How does MicroStrategy fund its massive Bitcoin purchases? The cornerstone of its strategy is to borrow money to buy Bitcoin through the issuance of convertible bonds. It is a fixed-income instrument that acts as a hybrid of debt and equity and can be converted into a certain number of company shares at a predetermined price at a future date.

By issuing these convertible notes in the fixed income market or directly to institutional investors, MicroStrategy is able to raise cash to quickly expand its Bitcoin holdings, often at very low borrowing costs. The bonds are attractive to investors because they offer the potential for equity conversion at a premium to the issue price, effectively functioning as a call option that would be further in demand during a bull market for MicroStrategy's growing Bitcoin reserves. enlarge. This creates a reflexive cycle: higher BTC prices drive MSTR stock premiums upward, allowing the company to issue more debt or equity to fund additional BTC purchases. These purchases add to the buying pressure, further pushing the price of Bitcoin higher – and the cycle continues, intensifying in a bull market.

Source: Microstrategy 2024 Third Quarter Quarterly Report

The above table highlights MicroStrategy’s outstanding Convertible notes, which will mature between 2025 and 2032. The company also recently raised $3 billion through another convertible bond offering due in 2029, which carries a 0% interest rate and a conversion premium of 55%, bringing its total outstanding debt to more than $7.2 billion.

Are there risks with MicroStrategy’s BTC strategy?

While their strategy has been wildly successful so far, one question remains: "What could go wrong? Is this another bubble waiting to burst?" MicroStrategy has a market capitalization of nearly $90 billion, and its Bitcoin The holdings are worth approximately $37.6 billion, and the company currently trades at a premium of approximately 2.5 times (250%) to its net asset value (NAV). In other words, MicroStrategy’s share price is trading at 2.5 times the value of its underlying Bitcoin reserves. This high valuation premium has raised concerns among market participants, who question how long it can last and what the consequences might be if the premium collapses or turns negative.

Participants also attempted to take advantage of the premium on MSTR shares by shorting MSTR shares and purchasing BTC as a hedge. Short interest in the stock has fallen to about 11% from about 16% in October as some short positions were unwound. To evaluate MicroStrategyWith the risk of potential liquidation of some of its Bitcoin holdings and the impact of declining MSTR/BTC price and NAV premiums, focusing on the health of its legacy software business may provide a better understanding of its ability to repay these debts.

Source: MicroStrategy 2024 Third Quarter Quarterly Report

Although since 2020, the quarterly performance of traditional business Revenue has been relatively stable, but operating cash flow has trended downward. Meanwhile, cumulative debt has grown significantly since 2020 to $7.2 billion, helped by the issuance of convertible bonds to fund Bitcoin acquisitions, with debt growth accelerating during the bull market. This reflects the company’s reliance on Bitcoin’s appreciation to maintain financial stability. Still, the relatively low interest costs on these bonds are likely to be borne by the software business. If bondholders convert their bonds into equity at maturity at a higher share price, much of the debt will be resolved without cash repayments. However, if market conditions worsen and MicroStrategy stock premium declines, the company may need to explore other strategies to meet its obligations.

Conclusion

MicroStrategy’s bold approach highlights Bitcoin’s potential as a corporate reserve asset. By leveraging its massive Bitcoin reserves, the company has expanded its market performance, establishing itself as a unique proxy for BTC.

However, this strategy carries inherent risks related to Bitcoin price volatility and the sustainability of the stock premium, which will require closer attention as market conditions develop.

MicroStrategy’s model could inspire wider adoption — not just among enterprises, but potentially at a sovereign level, further solidifying Bitcoin’s status as a store of value and premium reserve asset.