MSTR Stock Price Soars: Innovations and Risks in Bitcoin Investment Strategies

The stock price of MSTR (MicroStrategy) has risen from $69 at the beginning of the year to a peak of $543 last week, with an increase even surpassing that of Bitcoin. Notably, when Bitcoin experienced a pullback due to certain factors, MSTR maintained a strong upward momentum. This phenomenon prompts us to reassess its investment logic: MSTR is not merely leveraging the concept of Bitcoin, but also has its unique operational model and strategy.

The core strategy of MSTR: purchasing Bitcoin through convertible bonds

MSTR was originally a business intelligence reporting system company, but it has now transformed. Its core strategy is to raise funds by issuing convertible bonds, purchasing a large amount of Bitcoin, and incorporating it as an important component of the company's assets.

Convertible bonds are a special financing tool. Investors can choose to recover their principal and interest at maturity or convert the bonds into company stock at an agreed price. If the stock price rises significantly, investors may choose to convert to shares, leading to dilution; if the stock price does not rise, the company will need to pay a certain cost of capital.

The operation logic of MSTR is:

• Use the funds raised through convertible bonds to purchase Bitcoin
• Continuously increase Bitcoin holdings in this way, while enhancing the Bitcoin value per share.

For example, data from early 2024 shows that the Bitcoin corresponding to 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 (an increase of 33.3%), while the total number of shares was diluted by only 13.2%. The Bitcoin corresponding to every 100 shares rose from 0.091 to 0.107, gradually increasing the equity of Bitcoin holdings.

The latest data shows that as of November 16, MSTR announced the acquisition of 51,780 Bitcoin for 4.6 billion USD, bringing its total holdings to 331,200. Following this trend, the Bitcoin value corresponding to every 100 shares is approaching 0.12. From a coin-based perspective, MSTR shareholders' Bitcoin "equity" is continuously increasing.

MSTR: Bitcoin's "golden shovel"

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

• Continuously issuing bonds to purchase Bitcoin, increasing each share's Bitcoin holdings through share dilution.
• For investors, purchasing MSTR shares is equivalent to indirectly holding Bitcoin, and they can also enjoy leveraged gains from the increase in Bitcoin prices.

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

sustainability risk of the model

This model may face the following challenges:

• Increasing difficulty in fundraising: If the stock price does not rise, subsequent convertible bond issuance may become difficult.
• Excessive dilution: If the rate of share issuance exceeds the rate of Bitcoin acquisition, shareholder equity may shrink.
• Mode replication: More companies mimicking MSTR's strategy may lead to a loss of its uniqueness.

The strategic significance and risks of MSTR

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

However, the position risk of MSTR currently outweighs the returns, and investors should operate cautiously:

• If the Bitcoin price corrects, MSTR's stock price may suffer a larger decline due to the leverage effect.
• Whether it can maintain a high growth model in the future depends on fundraising capabilities 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. Many people missed the investment opportunity because they thought the price was too high, while MSTR bought in large amounts at $10000. As a result, Bitcoin rose to $20000, proving MSTR's foresight.

This time missing the investment opportunity in MSTR has made us realize that the operating logic and cognitive depth of American capital tycoons are worth learning. Although the model of MSTR is simple, it reflects a strong belief in the long-term value of Bitcoin. Missing an investment opportunity is not terrible; the key is to learn from it and enhance our own level of understanding.