MSTR (MicroStrategy) has risen from $69 at the beginning of the year to a peak of $543 last week, far outpacing Bitcoin! What impresses me is that while BTC was being dragged down due to election-related corrections, MSTR continued to soar. This made me rethink its investment logic: it’s not just riding the BTC wave, but has its own strategies and logic.
MSTR's Core Strategy: Issuing Convertible Bonds to Buy BTC
MSTR originally focused on BI (Business Intelligence reporting systems), but that industry is now in decline. Now its core strategy is: to raise funds by issuing convertible bonds, buying large amounts of BTC, and making it a significant part of the company's assets.
1. What are Convertible Bonds?
In simple terms, a company raises funds by issuing bonds, and investors can choose to receive the principal and interest at maturity or convert the bonds into the company's stock at a predetermined price.
--- If the stock price rises significantly, investors will choose to convert to stock, diluting the shares.
--- If the stock price does not rise, investors can choose to take back the principal and interest, and the company needs to pay a certain cost of funds.
2. MSTR's Operational Logic:
--- Use the funds raised from issuing convertible bonds to buy BTC.
--- Through this method, MSTR's BTC holdings continue to increase, and the BTC value per share is also growing.
For example: According to early 2024 data, the BTC corresponding to every 100 shares increased from 0.091 to 0.107, and by November 16, it had risen to 0.12.
Understanding this with the chart below will be clearer: The relationship between the BTC acquired through convertible bonds and the diluted shares for MSTR in the first three quarters of 2024.
--- In the first three quarters of 2024, MSTR increased its BTC holdings from 189,000 to 252,000 (a growth of 33.3%), while the total number of shares was only diluted by 13.2%.
--- The BTC corresponding to every 100 shares rose from 0.091 to 0.107, gradually increasing the equity in BTC holdings. Calculating at the beginning of the year: 100 shares of MSTR stock priced at ($69) $6900, 0.091 BTC (priced at $42,000) is worth $3822, which seems quite unprofitable compared to directly buying BTC (-45%). However, according to this growth model, by continuously issuing bonds, the amount of BTC held per share will keep increasing.
3. Latest Data:
On November 16, MSTR announced the acquisition of 51,780 BTC for $4.6 billion, bringing its total holdings to 331,200 BTC. At this trend, the BTC value corresponding to every 100 shares is already close to 0.12. From a coin-based perspective, MSTR shareholders' BTC "equity" is continuously increasing.
MSTR is the "gold shovel" of BTC
From a model perspective, MSTR's strategy is similar to using Wall Street leverage to mine BTC:
--- Continuously issuing bonds to buy BTC, increasing the BTC holdings per share through share dilution;
--- For investors, buying MSTR shares is equivalent to indirectly holding BTC while enjoying leveraged gains from the stock price increase due to BTC rising.
At this point, I believe smart partners have already noticed that this strategy is somewhat similar to a Ponzi scheme, using newly raised funds to subsidize the rights of old shareholders, continuing to raise funds in rounds.
4. When will this model stop being sustainable?
--- Increased fundraising difficulty: If the stock price does not rise, future convertible bond issuance will become difficult, making the model hard to sustain.
--- Excessive dilution: If the speed of issuing new shares exceeds the speed of increasing BTC holdings, shareholder equity may shrink.
--- Homogenization of the model: As more companies begin to imitate MSTR's model, its uniqueness may be lost after increased competition.
MSTR's Logic and Future Risks
Although MSTR's logic resembles a Ponzi scheme, from a long-term perspective, the accumulation of BTC by large American capital has strategic significance. The total supply of Bitcoin is only 21 million, while the U.S. national strategic reserve may occupy 3 million. For large capital, "hoarding coins" is not just an investment behavior but a long-term strategic choice.
However, currently, the risk of MSTR outweighs the benefits, so everyone should operate cautiously!
--- If the BTC price corrects, MSTR's stock price may suffer a larger decline due to its leverage effect;
--- Whether it can continue to maintain a high growth model in the future depends on its fundraising ability and the competitive market environment.
My Reflection and Cognitive Upgrade
In 2020, when MSTR first hoarded BTC, I remember Bitcoin rebounding from $3,000 to $5,000. I thought it was too expensive and didn’t buy, while MSTR bought heavily at $10,000. At that time, I thought they were foolish, but BTC soared to $20,000, and the fool turned out to be me. Missing out on MSTR made me realize that the operational logic and cognitive depth of American capital tycoons are worth serious study. Although MSTR's model is simple, it represents a strong belief in the long-term value of BTC. Missing out is not scary; what’s important is to learn from it and upgrade one’s understanding.
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