The BTC Strategy Behind MicroStrategy's Surge in Stock Price

MicroStrategy (MSTR)'s stock price rose from $69 at the beginning of the year to a peak of $543 last week, with an increase that even surpassed Bitcoin. Impressively, while Bitcoin experienced a pullback due to certain events, MSTR continued to rise. This prompts us to re-examine its investment logic: it is not merely leveraging the Bitcoin concept, but has its own unique operating model.

MSTR's Core Strategy: Acquiring BTC through Convertible Bonds

MicroStrategy was originally a business intelligence reporting system company, but this is a gradually declining industry. Nowadays, its core strategy is to raise funds through issuing convertible bonds, buying Bitcoin on a large scale, and making it an important part of the company's assets.

Convertible Bond Introduction

Convertible bonds are a special type of bond that companies issue to raise funds. Investors can choose to redeem the principal and interest at maturity or convert the bonds into company shares at a predetermined price.

• If the stock price rises sharply, investors may choose to convert their shares, leading to the dilution of the company's stock.
• If the stock price does not rise, investors may choose to reclaim their principal and interest, and the company must bear certain capital costs.

The operational logic of MSTR

MSTR uses the funds raised from issuing convertible bonds to purchase Bitcoin. In this way, the company continuously increases its Bitcoin holdings while also enhancing the Bitcoin value per share.

For example, based on data from early 2024, the amount of Bitcoin corresponding to every 100 shares increased from 0.091 to 0.107, and by November 16, it reached 0.12.

In the first three quarters of 2024, MSTR increased its Bitcoin holdings from 189,000 to 252,000 through convertible bonds (a growth of 33.3%), while the total number of shares was diluted by only 13.2%. The number of Bitcoins corresponding to every 100 shares rose from 0.091 to 0.107, gradually increasing the equity in Bitcoin holdings.

Latest developments

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 rate, the Bitcoin value corresponding to every 100 shares is nearing 0.12 BTC. From a Bitcoin standard perspective, MSTR shareholders' "equity" in Bitcoin is continually increasing.

MSTR: The "golden shovel" of Bitcoin

The model of MSTR is similar to using Wall Street leverage to "mine":

• Continuously issue bonds to purchase BTC, increasing the per-share BTC holdings by diluting shares.
• For investors, buying MSTR stock is equivalent to indirectly holding Bitcoin, and they can also enjoy leveraged gains from the stock price increase due to Bitcoin's rise.

This model is somewhat similar to a Ponzi scheme, using newly raised funds to enhance the rights of old shareholders, continuously cycling through fundraising.

Concerns about the sustainability of the model

• Increased fundraising difficulty: If the stock price does not rise, subsequent convertible bond issuance may become difficult.
• Excessive dilution: If the speed of issuing new shares exceeds the speed of Bitcoin accumulation, shareholder equity may shrink.
• Homogeneous competition: If more companies imitate MSTR's model, its uniqueness may be lost.

Strategic Significance and Risks of MSTR

In the long run, the accumulation of Bitcoin by large capital in the United States has strategic significance. The total supply of Bitcoin is only 21 million, and the U.S. national strategic reserves may occupy 3 million of them. For large capital, "holding coins" is not just an investment behavior, but a long-term strategic choice.

However, the current position risk of MSTR is greater than the return, and investors should be cautious:

• If the price of Bitcoin corrects, MSTR's stock price may experience a larger decline due to leverage effects.
• Whether it can continue to maintain a high growth model in the future depends on its fundraising ability and the market competition environment.

Reflection and Cognitive Upgrade

Looking back at 2020 when MSTR made its first large-scale purchase of Bitcoin, the price of Bitcoin rebounded from $3000 to $5000 at that time. Many people felt the price was too high and did not buy in, while MSTR bought heavily at $10,000. As a result, Bitcoin rose all the way to $20,000, proving the doubters wrong.

This time missing the investment opportunity in MSTR made us realize that the operational logic and cognitive depth of American capital tycoons are worth learning seriously. Although MSTR's model is simple, it represents a firm belief in the long-term value of Bitcoin. Missing an opportunity is not terrifying; what is important is to learn from it and improve our level of understanding.