Investment New Legend: A Comprehensive Analysis of MicroStrategy's Bitcoin Strategy

Wall Street has never been short of legendary stories, and MicroStrategy's strategic transformation into Bitcoin will undoubtedly become a unique new chapter.

Bitcoin Strategy that Draws Global Attention

In 2020, the COVID-19 pandemic triggered a global liquidity crisis, prompting countries to adopt loose monetary policies to stimulate their economies, leading to increased currency depreciation and inflation risks.

Michael Saylor reassessed the value of Bitcoin during the pandemic. He believes that with the money supply growing by 15% each year, people need a hedge asset that is not tied to fiat currency. Based on this judgment, he chose a Bitcoin strategy for MicroStrategy.

Compared to BTC ETFs or Spot Bitcoin ETPs launched by other companies, MicroStrategy's Bitcoin strategy is more aggressive. The company purchases Bitcoin through idle funds, issuing convertible bonds, and increasing shares, directly capturing the potential gains from Bitcoin's appreciation while also bearing the risk of decline, rather than just tracking the price.

MicroStrategy's Funding Sources and Bitcoin Purchase Journey

MicroStrategy primarily raises funds to purchase Bitcoin through four main avenues:

1. Use own funds to purchase
2. Issue convertible preferred bonds
3. Issue priority secured bonds
4. Market Price Stock Issuance

1. Use personal funds to purchase

MicroStrategy's initial three investments used idle funds on the books:

• August 2020: Purchased 21,400 Bitcoins for $250 million
• September 2020: Purchased 16,796 Bitcoins for $175 million
• December 2020: Purchased 2,574 Bitcoins for $50 million

2. Issue convertible preferred bonds

To purchase more Bitcoin, MicroStrategy has started to finance through the issuance of convertible bonds. Convertible preferred bonds allow investors to convert the bonds into company stock under specific conditions, usually having a lower or even zero interest rate, but setting a conversion price higher than the current stock price. Investors buy such bonds mainly for downside protection and potential gains when the stock price rises.

3. Issue Priority Guaranteed Bonds

MicroStrategy issued a $489 million, 6.125% interest rate, senior secured bond maturing in 2028. This type of secured bond has lower risk but only provides fixed interest income. This batch of bonds has opted for early repayment.

4. Market Price Stock Issuance

As the Bitcoin strategy begins to show results, MSTR's stock price continues to rise, and MicroStrategy has adopted more market-priced stock issuance methods for financing. This method of raising funds carries lower risks, with no repayment pressure and fixed repayment dates.

MicroStrategy has signed public market sales agreements with multiple brokerage firms, allowing it to issue and sell Class A common stock periodically through these firms. This method is more flexible, as the company can choose the timing of new stock sales based on the secondary market conditions.

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 of MicroStrategy's "Smart Leverage" for Purchasing Bitcoin

1. Leverage Risk Assessment

MicroStrategy's leverage risk is relatively low. As of December 30, 2024, the company's total assets are approximately $43.74 billion, with liabilities of $7.27385 billion, resulting in a debt-to-equity ratio of only 0.208. Compared to other leading listed companies, this ratio is at a healthy level.

2. Analysis of Convertible Bond Repayment Ability

If MicroStrategy no longer issues convertible bonds, its held Bitcoin value will only fall below the total amount of convertible bonds if Bitcoin drops below $16,364 in the long term. The company has various options to address potential debt repayment pressures, including issuing new shares, issuing new bonds to repay old debts, or selling part of its Bitcoin. Therefore, the likelihood of currently being in a "liquidation" situation is quite low.

3. The Importance of Coin Per Share

The amount of coin per share determines MSTR's net asset value per share. The "BTC Yield KPI" concept proposed by MicroStrategy's management indicates that as long as MSTR's market capitalization is higher than the total value of the BTC held, diluting equity to purchase Bitcoin can enhance the amount of coin per share, thereby increasing the net asset value per share. This is the core of what is called "smart leverage," turning the difference between the company's market capitalization and the value of its Bitcoin holdings into a capital operation advantage.

4. Recent Aggressive Buying Strategy Analysis

In November and December 2024, MicroStrategy significantly increased its financing for buying coins, investing $17.69 billion (accounting for 63.8% of the total investment) to purchase 192,042 Bitcoins (accounting for 43.2% of total purchases). This may be related to the substantial rise in MSTR's stock price, which provided the company with more favorable financing conditions.

5. The upward momentum of Bitcoin in the future

In addition to the purchasing behavior of publicly traded companies driven by MicroStrategy, the main driver for the future rise of Bitcoin may come from:

• Long-term holders with a strong consensus on Bitcoin
• Incremental funds brought by ETFs in the traditional financial market
• More listed companies are following MicroStrategy's strategy
• National strategic reserves (such as the Bitcoin strategic reserve plan proposed by Trump)

Conclusion

MicroStrategy's Bitcoin strategy is not only a corporate transformation business experiment but also a significant innovation in financial history. Through intricate capital operations, intelligent leverage, and profound insights into Bitcoin's value, it has not only achieved remarkable market capitalization growth for itself but has also pushed Bitcoin further into the view of traditional finance, breaking the barriers between crypto assets and mainstream capital markets. This bold attempt may just be the prelude to the Bitcoin legend, yet it could become an important milestone in the new era of finance.