Far Outperforms Bitcoin! MicroStrategy's Year-on-Year Growth Exceeds 600%, What Exactly Is MSTR's Core Strategy?

MSTR (MicroStrategy), rose from $69 at the beginning of the year to a high of $543 last week, far outperforming BTC! What impressed Uncle was that while BTC was pulled back due to the election and rubbed on the ground, MSTR continued to rise. This made me rethink its investment logic: it is not just riding on the concept of BTC, but has its own gameplay and logic.

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MSTR's core gameplay: issuance convertible bonds to buy BTC

MSTR was originally a business intelligence reporting system, but that's long been a sunset industry. Now its core strategy is to raise funds through issuance convertible bonds, buy a large amount of BTC, and make it a significant part of the company's assets.

1. What is a convertible bond?

In simple terms, the company finances through the issuance of bonds, and investors can choose to receive the principal and interest at maturity, or convert the bonds into company stocks at the agreed price.

If the stock price big pump, investors will choose to convert their stocks, and the shares will be diluted accordingly.

If the stock price does not rise, investors choose to withdraw their principal and interest, and the company needs to pay a certain cost of capital.

2. The operation logic of MSTR:

Use issuance to raise money to buy BTC.

By this means, the amount of BTC held by MSTR continues to increase, while the BTC value per share is also growing.

For example: According to the data at the beginning of 2024, the BTC corresponding to every 100 shares grew from 0.091 to 0.107, and even rose to 0.12 on November 16.

A clearer understanding can be gained by combining the following diagram: The relationship between the BTC held by the convertible bonds through issuance and the diluted shares in the first three quarters before 2024 for MSTR.

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In the first three quarters of 2024, MSTR increased its Bitcoin holdings from 189,000 to 252,000 (a growth of 33.3%) through convertible bonds, while the total number of shares only diluted by 13.2%.

BTC corresponding to every 100 shares rose from 0.091 to 0.107, and BTCHoldings equity gradually increased. We calculate based on the price at the beginning of the year: the price of 100 shares of MSTR stock is ($69) $6,900, 0.091 BTC ($42,000) price $3,822, compared to the value of buying BTC directly (-45%), it seems not cost-effective. However, according to this growth model, the number of BTC held per share will increase over time through continuous debt issuance.

3. Latest data:

On November 16, MSTR announced an acquisition of 51,780 BTC for $4.6 billion, bringing its total holdings to 331,200 BTC. At this rate, the BTC value corresponding to every 100 shares has approached 0.12. From a coin-centric perspective, MSTR shareholders' BTC 'equity' is continually increasing.

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MSTR is the "gold shovel" of Bitcoin

From a modeling perspective, MSTR's gameplay is similar to using Wall Street's leverage to mine BTC:

Continuously issuing bonds to buy BTC, and increasing the BTCHoldings per share through dilution of equity.

For investors, buying MSTR shares is equivalent to indirectly holding BTC and enjoying leveraged gains in stock prices due to BTC's rise.

By now, I believe smart buddies have already noticed that this gameplay is actually more similar to Ponzi scheme, using newly raised funds to subsidize the rights and interests of old shareholders, and continuously raising funds in rounds.

4. When will this pattern not continue?

Increasing difficulty in fundraising: If the stock price does not rise, subsequent convertible bond issuance will become difficult, and the model will be difficult to sustain.

Overdilution: If the speed of issuing new shares exceeds the speed of BTC holdings, shareholders' equity may shrink.

Homogenization of patterns: More and more companies are starting to imitate MSTR's pattern. After the competition intensifies, its uniqueness may be lost.

The logic of MSTR and the future risks

Although MSTR's logic is a bit like Ponzi, from a long-term perspective, the large-scale hoarding of BTC by major US capital has strategic significance. With a total of only 21 million BTC, the US national strategic reserve may occupy 3 million. For major capital, 'Coin Hoarding' is not only an investment behavior, but also a long-term strategic choice.

However, MSTR's current position has more risk than return, so everyone should operate with caution!

If the price of Bitcoin pullback, the stock price of MSTR may suffer a greater decline due to its leverage effect;

Whether the future can continue to maintain a high-growth mode depends on fundraising capabilities and market competition environment.

Uncle's Reflection and Cognitive Upgrade

In 2020, when MSTR first hoarded BTC, Uncle remembered that BTC rebounded from $3,000 to $5,000. Uncle thought it was expensive and didn't buy it, while MSTR bought a large amount at $10,000. At that time, Uncle still thought they were foolish, but the result was that BTC continued to rise to $20,000, and the clown turned out to be Uncle himself. Missing MSTR this time made Uncle realize that the operating logic and understanding of American capital giants are worth learning. Although MSTR's model is simple, it represents a strong belief in the long-term value of BTC. It is not scary to miss out, what's important is to learn from it and upgrade one's own understanding.

【Disclaimer】There are risks in the market, and investment needs to be cautious. This article does not constitute investment advice, and users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their specific situation. Invest at your own risk.

This article is authorized to be reproduced from: "PANews".

Original author: Jiǎnshū

This article, 'The increase far exceeds Bitcoin! MicroStrategy's annual increase exceeds 600%, what is MSTR's core play?', was first published in 'encryption City'.