The Driving Force Behind Bitcoin's Surge to $98,000

The price of Bitcoin has surpassed the $98,000 mark, exciting many investors. In this round of rally, the $40K-$70K range mainly benefited from the promotion of Bitcoin ETFs, while the $70K-$100K range cannot be separated from the contributions of a certain technology company.

Some viewpoints compare the company to a Bitcoin version of Luna, but this analogy is not appropriate. In fact, there are significant differences between this company and Luna in essence.

The following points can help us better understand the relationship between the company and Bitcoin:

1. The company has a thicker safety cushion, and the risk is much lower than Luna.
2. The company increases its holdings of Bitcoin by issuing bonds and conducting stock offerings.
3. The company's recent debt matures in 2027, which is more than two years from now.
4. Currently, the main soft threat to the company comes from Bitcoin whales.

The thickness of the cushion far exceeds Luna

The company was originally a software enterprise with a large cash reserve. Starting in 2020, the company began investing funds into Bitcoin. After exhausting its own funds, the company started borrowing money to purchase Bitcoin by issuing corporate bonds.

Unlike Luna, the company adopts a bottom-up investment strategy with leverage, essentially borrowing money to go long. There is a mutual printing problem between UST and Luna, and UST is essentially an unanchored currency issue, relying solely on high interest rates for maintenance.

The application range of Bitcoin far exceeds that of UST, and the company's influence on Bitcoin is also much lower than Luna's influence on UST. Therefore, the company is essentially different from Luna.

Bond Issuance and Stock Expansion

To quickly raise funds, the company issued a total of approximately $5.7 billion in debt. Almost all of this capital was used to continuously increase its Bitcoin holdings.

The company issues a type of convertible bond. Bondholders have the right to convert the bond into company shares, divided into two stages:

1. Initial Stage:

   • When the bond trading price falls by more than 2%, the creditor may convert the bond into stock and sell it.
   • When bond prices are normal or rising, creditors can sell bonds in the secondary market.

2. Later Stage:

   • When the bond is about to expire, the holder can choose to redeem it for cash or convert the bond into stock.

This design is a relatively secure investment for creditors.

As the price of Bitcoin rises, the company's stock price has also surged significantly. Currently, the company not only relies on issuing bonds but can also raise funds by issuing additional shares. Last week, Bitcoin broke through from 80K to 98K, which is closely related to the 4.6 billion dollars raised by the company through the issuance of additional shares.

The company's operational model can be summarized as: Buy Bitcoin → Stock price rises → Borrow to buy more Bitcoin → Bitcoin rises → Stock price rises further → Increase debt → Purchase more Bitcoin → Stock price continues to rise → Issue more shares to raise funds → Purchase more Bitcoin → Stock price continues to rise......

The debt repayment date is still far away

Despite some questioning whether the company is on the brink of danger, the reality is otherwise.

According to statistics, the company's average cost of holding Bitcoin is $49,874, which is currently close to a 100% floating profit, providing quite a solid safety cushion.

Even in the worst-case scenario, if the price of Bitcoin plummets by 75% to $25,000, the company will not face an immediate crisis. This is because the company has borrowed through over-the-counter leverage, which has no forced liquidation mechanism. Creditors can only convert the bonds into stocks at a designated time and then sell.

Even if the company's stock price falls to zero, it will not be forced to sell Bitcoin, as the earliest debt repayment deadline is in February 2027.

This means the company has at least more than two years to continue operating.

Due to the relatively low risk of the convertible bonds issued by the company for creditors, the interest cost is quite low. For example, the interest on the debt maturing in February 2027 is 0%. The interest on several other debts is also around 0.625% and 0.825%, with only one being 2.25%. Therefore, the interest pressure will not force the company to sell Bitcoin.

Potential Threats from Bitcoin Whales

Currently, the company has formed a causal relationship with Bitcoin. More companies are starting to follow this operational model. For example, a publicly listed Bitcoin mining company recently issued $1 billion in convertible bonds, preparing to invest in Bitcoin.

Therefore, short sellers need to act with caution. If more institutions follow this model, the upward trend of Bitcoin may become even stronger.

Currently, the company's biggest rivals may be those early investors who hold a large amount of Bitcoin. As previously predicted, the Bitcoin in the hands of retail investors has basically flowed out. As long as these large holders do not sell off in large quantities, this upward momentum will be hard to stop.

This is also an important difference between Bitcoin and Ethereum: the founder of Bitcoin is believed to own nearly 1 million early-mined Bitcoins, but there are no signs of them being used to this day; whereas the Ethereum Foundation sometimes sells a small amount of ETH to test market liquidity.

As of the date of writing, the company has achieved approximately $15 billion in floating profits. Due to the substantial profits, the company may increase its investment efforts and can no longer easily exit. More institutions may follow this model. According to the current trend, 170K may be the mid-term target for Bitcoin.

This operational model demonstrates a well-designed positive strategy that is worth our deep reflection.