Bitcoin breaks through the 98000 USD mark, MicroStrategy has made significant contributions.

Bitcoin reached a historic high of $98,000, igniting excitement in the market. The Bitcoin ETF played a significant role in the surge from the $40,000 to $70,000 range; while the advance from $70,000 to $100,000 is credited to MicroStrategy (.

Some opinions compare MicroStrategy to the Bitcoin version of the Luna project, but this analogy is not appropriate. Bitcoin is the most representative asset in cryptocurrency, while Luna is a controversial project. This article will delve into the relationship between MicroStrategy and Bitcoin.

First, it is important to clarify a few points:

1. MicroStrategy is fundamentally different from Luna, with a higher margin of safety.
2. MicroStrategy increases its Bitcoin holdings by issuing bonds and conducting stock buybacks.
3. MicroStrategy's most recent debt maturity date is in 2027, which is more than two years away.
4. The main risks faced by MicroStrategy come from the influence of Bitcoin whales.

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The Difference Between MicroStrategy and Luna

MicroStrategy was originally a software company. Due to having a large amount of cash on hand and no intention to expand production scale, it started investing funds into Bitcoin from 2020. After the company's funds were exhausted, MicroStrategy began to finance the purchase of Bitcoin by issuing corporate bonds.

This is fundamentally different from the operational model of Luna and UST. Luna and UST are printed in tandem; UST is essentially an unpegged currency issuance that relies solely on a 20% high interest rate for maintenance. In contrast, MicroStrategy adopts a low-point dollar-cost averaging strategy with leverage, which is a standard borrowing to go long, and the directional judgment is correct.

The usage of Bitcoin far exceeds that of UST, and MicroStrategy's influence on Bitcoin is also far less than Luna's influence on UST. Simply put, a daily interest rate of 2% is a Ponzi scheme, while an annual interest rate of 2% is normal banking business; quantitative change leads to qualitative change. Moreover, MicroStrategy is not the only factor determining the trend of Bitcoin, so MicroStrategy should never be equated with Luna.

MicroStrategy's Financing Model

To quickly raise funds, MicroStrategy issued a total of 5.7 billion dollars in debt ), which is equivalent to 1/15( of Microsoft's debt, almost all of which is used to increase its holdings of Bitcoin.

Unlike on-exchange leverage, off-exchange leverage does not require collateral. So why are investors willing to lend money to MicroStrategy? The key lies in the fact that MicroStrategy issues convertible bonds.

For example, with a convertible bond, the bondholder can convert the bond into MSTR stock in two stages:

1. Initial Stage:

   • If the bond price falls by more than 2%, creditors can convert the bonds into MSTR stock and sell them;
   • If the bond price is normal or rises, creditors can sell the bonds in the secondary market.

2. Later stage: When the bond is approaching maturity, the 2% rule no longer applies, and the creditor can choose to receive cash or convert the bond into MSTR shares.

This design is almost a sure win for creditors:

• If Bitcoin falls and MSTR has sufficient funds, creditors can recover cash.
• If Bitcoin falls and MSTR lacks sufficient funds, creditors can still convert the bonds into stocks for cash.
• If Bitcoin rises, MSTR stock price will rise, and creditors can obtain higher stock returns.

This is an investment with a high lower limit and a very high upper limit, which is why MicroStrategy successfully raised the required funds.

Fortunately, MicroStrategy chose Bitcoin as its investment target, and Bitcoin has lived up to its expectations.

As the price of Bitcoin continues to rise, the Bitcoin purchased early by MicroStrategy has significantly appreciated. According to traditional stock valuation principles, the more assets a company has, the higher its market value should be. Therefore, MicroStrategy's stock price has also soared.

Currently, MicroStrategy's daily trading volume has surpassed that of this year's popular stock Nvidia. This provides MicroStrategy with more financing options.

In addition to issuing bonds, MicroStrategy can now raise funds by issuing additional shares. Last week, Bitcoin surged from $80,000 to $98,000, largely driven by MicroStrategy. MicroStrategy raised $4.6 billion by issuing additional shares.

Unlike many cryptocurrency companies that cash out the funds they raise directly, MicroStrategy has once again demonstrated its grand vision. It will invest all the funds obtained through stock financing into Bitcoin, pushing the price of Bitcoin to break through $98,000.

At this point, the operating model of MicroStrategy has formed a closed loop:

Buy Bitcoin → Stock price rises → Issue bonds to buy more Bitcoin → Bitcoin rises → Stock price further increases → Increase debt → Buy more Bitcoin → Stock price continues to rise → Issue more shares for financing → Buy more Bitcoin → Stock price keeps rising......

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Analysis of MicroStrategy's Debt Risk

Although some believe that MicroStrategy has reached a dangerous edge and may even repeat the fate of Luna, the actual situation is not so.

According to the latest statistics, MicroStrategy's average cost of holding Bitcoin is $49,874, which is currently close to a 100% floating profit, providing a substantial safety cushion.

Even in the worst-case scenario, a 75% crash in Bitcoin prices ) is almost impossible to happen ( to $25,000, what would happen then?

MicroStrategy uses over-the-counter leverage and does not have a forced liquidation mechanism. The worst-case scenario is that angry creditors convert their bonds into MSTR stock and sell them.

Even if MSTR's stock price falls to zero, MicroStrategy will not be forced to sell its held Bitcoin, because the earliest debt repayment due date is February 2027.

This means that, until February 2027, MicroStrategy will only need to sell some Bitcoin in February unless Bitcoin crashes and there are no investors willing to buy MSTR stock.

In other words, MicroStrategy has at least two more years to continue its strategy.

Some may worry that interest expenses will force MicroStrategy to sell Bitcoin, but this concern is unnecessary.

Due to the convertible bonds issued by MicroStrategy being essentially risk-free for creditors, the interest rate is quite low. For instance, the bond maturing in February 2027 has an interest rate of 0%. Creditors are purely focused on the appreciation potential of MSTR's stock.

MicroStrategy's subsequent debt issuances have interest rates of only 0.625%, 0.825%, and only one is at 2.25%, which has a minimal impact. Therefore, there is no need to worry about interest expenses.

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Main Risks Faced by MicroStrategy

Currently, MicroStrategy and Bitcoin have formed a mutually influential relationship.

More and more companies are beginning to follow the operational strategies of MicroStrategy founder Saylor. For example, the publicly listed Bitcoin mining company MARA has just issued $1 billion in convertible bonds specifically for bottom-fishing Bitcoin.

Therefore, short sellers need to act with caution. If more companies follow MicroStrategy's strategy, Bitcoin's upward momentum could become unstoppable, as there is almost no resistance above.

Currently, MicroStrategy's biggest competitors may be those early investors who hold a large amount of Bitcoin.

As previously predicted, the Bitcoin held by retail investors has basically been sold off, after all, there are too many market opportunities, such as meme coins and other hotspots.

Therefore, only these large holders remain in the market. As long as these large holders do not sell off on a large scale, the upward momentum of Bitcoin is hard to stop. If we are a bit luckier, if these large holders form some kind of tacit understanding with MicroStrategy, there is hope for Bitcoin to reach higher price levels.

This is also a major difference between Bitcoin and Ethereum: Satoshi Nakamoto theoretically owns nearly 1 million early-mined Bitcoins, but has been out of touch to this day; while the Ethereum Foundation occasionally sells a small amount of ETH to test the market.

As of the time of writing, MicroStrategy has achieved a floating profit of $15 billion, thanks to its firm belief and loyalty. Due to the substantial profits, MicroStrategy will continue to increase its investments and cannot turn back, while more companies will follow its strategy. According to the current situation, $170,000 may be the mid-term target for Bitcoin.

In the cryptocurrency market, we often see various conspiracy theories. The operations of MicroStrategy can be regarded as a top-level overt scheme, worthy of admiration.

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