MicroStrategy's Bitcoin Strategy: A Revolutionary Financial Experiment

In the long history of Wall Street, the Bitcoin strategic transformation of MicroStrategy will undoubtedly become a unique new legend.

Bitcoin Strategy that has Captured Global Attention

In 2020, a global liquidity crisis erupted, prompting countries to adopt loose monetary policies to stimulate the economy, leading to currency depreciation and increased inflation risks.

In this context, Michael Saylor reassessed the value of Bitcoin. He believes that in an environment of rapidly growing money supply, people need a safe-haven asset that is not tied to fiat currency. Therefore, he chose the Bitcoin strategy for MicroStrategy.

Compared to the BTC ETFs or other spot Bitcoin ETPs launched by some companies, MicroStrategy's approach is more aggressive. The company purchases Bitcoin through idle funds, issuing convertible bonds, and issuing additional shares, directly obtaining the appreciation benefits of Bitcoin while also bearing the risk of decline. In contrast, ETFs/ETPs focus more on tracking prices.

MicroStrategy's Funding Sources and Bitcoin Purchase Journey

MicroStrategy mainly raises funds to purchase Bitcoin through four ways:

1. Purchase with own funds

The initial three investments used idle funds on the books. In August 2020, $250 million was invested to purchase 21,400 Bitcoins; in September, $175 million was invested to purchase 16,796; and in December, $50 million was invested to purchase 2,574.

2. Issue convertible preferred bonds

To purchase more Bitcoin, MicroStrategy has begun issuing convertible bonds for financing. Convertible bonds allow investors to convert the bonds into company stock under specific conditions, usually at a lower interest rate. The interest rates on several rounds of convertible bonds issued by MicroStrategy are mainly between 0% and 0.75%.

3. Issuance of Priority Secured Bonds

MicroStrategy also issued a secured bond of $489 million, maturing in 2028, with an interest rate of 6.125%. This is a type of secured bond, which carries lower risk but only offers fixed interest income. This batch of bonds has been repaid early.

4. Market Price Stock Issuance

As the strategy begins to show results and the stock price rises, MicroStrategy adopts more methods of financing through the issuance of market-priced shares. This approach carries lower risks and no repayment pressure. MicroStrategy has signed public market sales agreements with several institutions, allowing for flexible choices regarding the timing of new stock sales.

As of December 30, 2024, MicroStrategy has invested approximately $27.7 billion in total, purchasing 444,262 Bitcoins at an average holding price of $62,257 per coin.

Key Issues with MicroStrategy's "Intelligent Leverage" Bitcoin Purchase

1. Is the leverage risk high?

Currently, the leverage risk is not high. As of the end of December 2024, MicroStrategy's total assets are approximately $43.74 billion, liabilities are $7.27 billion, and the debt-to-equity ratio is only 0.208, which is at a healthy level.

2. When will convertible bonds become an unbearable burden?

If no new convertible bonds are issued, the holding value will only fall below the total amount of convertible bonds when Bitcoin long-term drops below $16,364. If methods like ATM financing are continued for purchases, this "insolvency" price line may further decrease.

Convertible bonds may only become a burden when a large amount of debt is issued at a high position, encounters a bear market, the value of the holdings falls below the total debt amount, and it affects refinancing and repayment capabilities.

3. Why do investors pay attention to the coin amount per share?

The coin amount per share determines the net asset value per share. As long as the market value premium rate is positive, diluting the equity to buy Bitcoin can increase the coin amount per share and enhance the net asset value per share. This is the core of "smart leverage," transforming the difference between the company's market value and the position value into a capital operation advantage.

4. Why has there been a more aggressive buying recently?

This may be due to the stock price being at a high level. In November-December 2024, an investment of 17.69 billion USD ( accounts for 63.8% of the total investment ), with the purchase of 192,042 coins ( accounting for 43.2% of the total ). Among them, 14.69 billion is financed through ATM, which may be due to the stock price increasing more than 4 times throughout the year.

5. What is the driving force behind the future rise of Bitcoin?

In addition to companies that emulate MicroStrategy, there may be more national strategic reserves, but it is not advisable to have overly high expectations for this round of bull market. Currently, some countries and regions hold Bitcoin, but most of it is from law enforcement seizures, and the true holders may only be a few countries like El Salvador.

Summary

MicroStrategy's Bitcoin strategy is not only an experiment in corporate transformation but also a significant innovation in financial history. Through sophisticated capital operations, intelligent leverage, and insights into the value of Bitcoin, it has not only achieved growth in its market value but also pushed Bitcoin into the traditional financial arena, breaking down the barriers between crypto assets and mainstream capital markets. This may just be the prologue to the legend of Bitcoin, yet it could represent a major step into a new era of finance.