It is well known that Michael Salyor, the boss of MicroStrategy, is a BTC fanatic who keeps hoarding coins regardless of whether the market is bullish or bearish. With Trump’s victory, BTC has surged to nearly $100,000, and MicroStrategy, which holds 386,000 BTC, has also seen its stock price soar, with a gain of about 500% since the beginning of this year, surpassing BTC’s 121% gain.
How does MicroStrategy’s strategy work? Can MicroStrategy still rise? Is it the leveraged version of BTC or this round of Luna? Let’s take a look with WOO X Research!
What strategy does MicroStrategy use to buy BTC?
Currently, most people’s impression of MicroStrategy is mostly about buying Bitcoin, but in fact, MicroStrategy is a technology company founded as early as 1989, mainly providing data analysis solutions to help enterprises with data analysis and decision-making.
In August 2020, CEO Michael Saylor saw the value of Bitcoin and believed it to be a scarce digital asset with long-term appreciation potential. It can withstand inflation and preserve value. He converted the company’s $250 million reserves into BTC, marking the beginning of MicroStrategy’s crazy Coin Hoarding.
As of November 2024, MicroStrategy holds approximately 386,700 BTC, accounting for 1.8% of the total global BTC.
How did they do it?
MicroStrategy issuance debt purchase BTC:
The company raises funds through the issuance of bonds (such as convertible bonds) and then uses these funds to purchase BTC.
This is the starting point of the strategy, using leverage to increase Holdings in Bitcoin.
BTC price pump, MicroStrategy Market Cap rise:
As the price of Bitcoin rises, the asset value of MicroStrategy (which holds a large amount of BTC) also rises, driving the company’s stock market capitalization to rise.
Market Caprise, increase the weight of stocks in the index:
Market Caprise increases the weight of Microstrategy’s stock in financial indices such as S&P 500, NASDAQ, etc.
More index funds need to allocate to MicroStrategy stocks to further boost the stock price.
MicroStrategy issuance stock purchase BTC:
After the Market Caprise, MicroStrategy used the demand for its stocks in the market to issue new shares at a premium, sell them, and buy BTC.
BTC price pump, further driving Market Cap:
The newly purchased BTC, as the price pumps, further increases the company’s asset value and market capitalization.
Market Caprise once again enhances the attractiveness of stocks in the market.
MicroStrategy once again issuance stocks, repeat cycle:
MicroStrategy leverages the rise in stock market capitalization to repeatedly conduct new rounds of stock issuance and BTC purchases, forming a ‘flywheel effect’.
The key point of MicroStrategy is to start a positive flywheel cycle, making BTC and MicroStrategy’s market cap the perpetum mobile of pump. The subtleties of this model can be further explored by delving into the details.
Currently, there are five convertible bonds of MicroStrategy in the market, with a principal value of $4.25 billion, maturing between 2027 and 2032, which are medium to long-term bonds, and most of them are zero-coupon bonds, meaning that the principal does not need to be repaid before maturity, thereby reducing the default risk of MicroStrategy.
In terms of stock issuance, since the launch of the Bitcoin strategy, MicroStrategy has announced five stock issuances, raising as much as $4.4 billion.
Source: Bloomberg
Will MicroStrategy be liquidated when the currency price falls?
On November 21, the well-known shorting institution Citron said: ‘Although Citron is still optimistic about BTC, we have hedged through the Short MSTR position. We have great respect for Saylor, but even he must know that MSTR is overheated.’
Does the worry about citrus make sense?
The design pattern of the asset flywheel inevitably reminds people of Luna/UST, relying on the interplay of the two assets to drive the price rapidly higher. It also inevitably raises concerns: if the price of one asset falls, will it cause a chain reaction of liquidation and stampede?
But the trap mode of this MicroStrategy is very different from Luna:
Low debt ratio: Currently, MicroStrategy’s Market Cap is about 750 billion US dollars, with bonds at 42.5 billion, and the overall debt ratio is low in the company’s financial structure, with maturity dates between 2027 and 2032.
No dumpingBTC willingness: Well-known KOL @TheFlowHorse recently stated that if Michael Saylor sells BTC, it would be the best trade ever. Michael Saylor responded that he will not sell BTC.
This commitment also ensures that MicroStrategy’s ‘premium issuance stock’ strategy can continue.
Premium returns to 2021 levels: From the chart below, we can see that even during the 2022 Bear Market, MicroStrategy has maintained a premium state and has not fallen below.
Currently, the green line is surging rapidly, indicating the market’s confidence in the MicroStrategy BTC strategy is being rebuilt, returning to the level of the bull market in 2021.
Source: CryptoQuant
If BTC big dump, the probability of MicroStrategy being forced to dump and causing a chain stampede of stocks and coins is very low, and the leverage ratio is not as exaggerated as imagined.
Conclusion: MicroStrategy’s success case has sparked a BTC buying frenzy among Web 2.0 companies.
The success of MicroStrategy’s BTC reserve strategy has also attracted imitation from other companies, including:
RUMBLE: The video sharing platform announced the purchase of up to 20 million US dollars worth of Bitcoin as reserves
Interactive Strength: Fitness equipment company, announced the purchase of 5 million dollars worth of Bitcoin as reserves
Hoth Therapeutics: Biopharmaceutical company announced the purchase of $1 million worth of Bitcoin as a reserve
There are numerous other examples. An increasing number of companies (small-cap stocks) are following the successful BTC reserve model of micro-strategies, but most of them are short-term gimmicks. Firstly, the success of the strategy is partly built on capital-intensive factors. Secondly, if small companies use this strategy, they are more likely to be suspected by investors and subject to regulatory scrutiny.
But in any case, BTC will be the biggest winner.
