MicroStrategy's Stock Price Soars: The Logic Behind the Bitcoin Investment Strategy

MicroStrategy (stock code MSTR) share price soared from 69 dollars at the beginning of the year to a peak of 543 dollars last week, with an increase even surpassing that of Bitcoin. It is noteworthy that when Bitcoin experiences pullbacks due to certain events, the MSTR stock price continues to maintain an upward momentum. This prompts us to re-examine its investment logic: MSTR is not merely speculating with the Bitcoin concept, but has its unique business strategy.

MSTR's core strategy: issue convertible bonds to purchase Bitcoin

MicroStrategy was originally a business intelligence reporting system company, but this has become a declining industry. Today, the company's core strategy is to raise funds by issuing convertible bonds, massively purchase Bitcoin, and make it an important component of the company's assets.

Introduction to Convertible Bonds

A convertible bond is a special type of bond that allows investors to choose to receive the principal and interest upon maturity, or to convert the bond into company stock at an agreed price.

• If the stock price rises significantly, investors may choose to convert their shares, which will result in the dilution of the company's stock.
• If the stock price performs poorly, investors may choose to withdraw their principal and interest, and the company will need to bear the corresponding capital costs.

MSTR's operating model

• Use the funds raised from issuing convertible bonds to purchase Bitcoin.
• In this way, the amount of Bitcoin held by MSTR continues to increase, while the value of Bitcoin per share is also rising.

For example, according to data from early 2024, the Bitcoin corresponding to every 100 shares of MSTR stock increased from 0.091 to 0.107, and reached 0.12 by November 16.

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

On November 16, MSTR announced the acquisition of 51,780 Bitcoins for $4.6 billion, bringing its total holdings to 331,200. At this rate, the Bitcoin value per 100 shares is approaching 0.12. From a coin-based perspective, the Bitcoin "equity" of MSTR shareholders is continuously increasing.

MSTR: Bitcoin's "golden shovel"

In terms of strategy, MSTR's approach is similar to using Wall Street's leverage to "mine":

• Continuously issuing bonds to buy Bitcoin, increasing the per-share Bitcoin holdings through share dilution.
• For investors, purchasing MSTR shares is equivalent to indirectly holding Bitcoin, while also enjoying leveraged gains from the increase in Bitcoin prices.

sustainability of the model

This model may face the following challenges:

• Increased fundraising difficulty: If the stock price does not rise, future convertible bond issuance may become challenging.
• Over-dilution: If the speed of issuing new shares exceeds the speed of Bitcoin accumulation, shareholder equity may be diluted.
• The model is being replicated: If more companies follow MSTR's model, its uniqueness may diminish.

The investment logic and potential risks of MSTR

In the long run, it may be strategically significant for large capital to accumulate Bitcoin. The total supply of Bitcoin is only 21 million coins, and large institutions may occupy a considerable proportion. For large capital, "coin hoarding" is not just an investment behavior, but also a long-term strategic choice.

However, the investment risks of MSTR are worth noting:

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

Investment Reflection

Looking back at the time when MSTR made its first large-scale purchase of Bitcoin in 2020, many believed that the price of Bitcoin was already too high. However, it turned out that MSTR's decision was correct. The surge in MSTR's stock price reminds us that the operational logic and insights of American capital tycoons are worth studying in depth. Although MSTR's model seems simple, it reflects a strong belief in the long-term value of Bitcoin. Missing investment opportunities is not scary; what matters is to learn from them and continuously improve one's cognitive level.