Let’s start by celebrating the exciting milestone—Bitcoin has reached $98,000!

It’s clear that the surge from $40K to $70K was driven by Bitcoin ETFs, but the leap from $70K to $100K owes much to MicroStrategy.

Recently, many people have likened MicroStrategy to a Bitcoin version of Luna, which feels a bit unfair. Bitcoin is my favourite cryptocurrency, while Luna is my least favourite.

This post aims to help clarify the relationship between MicroStrategy and Bitcoin.

Here are a few key takeaways upfront:

• MicroStrategy is not Luna—it has a far stronger financial foundation.
• MicroStrategy has been acquiring Bitcoin by issuing bonds and selling stock.
• Its next major debt repayment isn’t due until 2027, giving it over two years of breathing room.
• The only significant risk to MicroStrategy is the behaviour of Bitcoin whales.

[Why MicroStrategy Is Not Luna: A Stronger Foundation]

MSTR Net Worth vs. Bitcoin Price

MicroStrategy started as a software company with substantial unrealized gains and limited interest in reinvesting in its operations. In 2020, it transitioned to an asset-light model by using its cash reserves to purchase Bitcoin.

After exhausting its available cash, the company turned to leverage. It raised funds through corporate bonds, essentially borrowing money to invest in Bitcoin.

The key distinction between MicroStrategy and Luna lies in their approaches. Luna and UST operated by printing tokens without intrinsic value, sustained only by an unsustainable 20% promised return.

In contrast, MicroStrategy adopted a strategy of strategic leveraging and long-term investment in Bitcoin. It bet on the right direction.

Bitcoin’s global adoption far surpasses UST’s, and MicroStrategy’s influence on Bitcoin is far less direct than Luna’s dominance over UST. The logic is simple: as the saying goes, “Compounding daily at 2% is a Ponzi scheme, but compounding annually at 2% is a bank.” Small differences in scale lead to vastly different outcomes. MicroStrategy isn’t the sole driver of Bitcoin, making it fundamentally different from Luna.

[MicroStrategy’s Strategy: Increasing Bitcoin Holdings Through Bonds and Stock Sales]

To quickly raise capital, MicroStrategy has issued several debt instruments totalling $5.7 billion (about 1/15th of Microsoft’s total debt). Almost all of this money has been used to steadily accumulate Bitcoin.

While many are familiar with on-market leverage—where you pledge Bitcoin as collateral to borrow funds—off-market leverage operates differently. The key concern for any creditor is repayment. Without collateral, why would anyone lend to MicroStrategy off-market?

The answer lies in MicroStrategy’s clever use of convertible bonds. Here’s how it works: bondholders have the option to convert their bonds into MSTR stock, following a two-phase structure:

1. Early Stage:

   If the bond price drops more than 2%, creditors can convert the bonds into MSTR shares and sell them to recoup their investment.

If the bond price remains stable or rises, they can sell the bonds directly in the secondary market.

1. Later Stage: As the bonds near maturity, the 2% rule no longer applies. Creditors can either cash out or convert the bonds into MSTR shares.

This structure makes the deal nearly risk-free for creditors:

• If Bitcoin’s price falls but MSTR has funds, creditors are repaid in cash.
• If Bitcoin’s price falls and MSTR lacks funds, creditors can still convert bonds into stock as a last resort.
• If Bitcoin’s price rises, MSTR stock value increases, and creditors can exchange bonds for more valuable shares.

In short, this high-floor, high-ceiling arrangement allowed MicroStrategy to raise funds effortlessly. Its unwavering choice to invest in Bitcoin has been rewarded, as Bitcoin has continued to thrive.

MicroStrategy’s Stock Performance in 2024

With Bitcoin’s price surging, the value of MicroStrategy’s early Bitcoin holdings has soared. Following traditional stock valuation principles, more assets mean higher market value, leading to a skyrocketing stock price.

Today, MicroStrategy’s trading volume has even surpassed Nvidia, this year’s market darling. This has opened up more opportunities for MicroStrategy.

The company is no longer solely reliant on debt issuance. It now raises funds by issuing additional shares. Unlike meme coin projects or Bitcoin developers without minting authority, traditional companies like MicroStrategy can legally issue new shares.

Last week’s rise in Bitcoin from $80K to $98K owes much to MicroStrategy. The company issued new shares, raising $4.6 billion in the process.

P.S.: With trading volumes surpassing Nvidia, liquidity is not a concern.

MicroStrategy’s bold vision deserves admiration. Unlike many crypto firms that sell assets for quick cash, MicroStrategy stays focused on its long-term strategy, reinvesting proceeds into Bitcoin. This cycle has propelled Bitcoin to $98K.

MicroStrategy’s “magic trick” is clear:

Buy Bitcoin → Stock price rises → Issue debt to buy more Bitcoin → Bitcoin price rises → Stock price rises further → Issue more debt → Buy more Bitcoin → Stock price rises again → Issue new shares → Buy more Bitcoin → Stock price rises even higher…

This grand cycle is the work of a true magician.

[MicroStrategy’s Debt Maturity in 2027: No Immediate Pressure]

Even the best strategies face challenges eventually.

Critics and short sellers argue that MSTR is nearing a breaking point, akin to a Luna-style collapse. But is that really the case?

MicroStrategy’s average Bitcoin cost is $49,874, meaning it currently sits on nearly 100% unrealized gains—a massive safety cushion.

Even in the unlikely scenario where Bitcoin drops 75% to $25,000, the company’s off-market leverage ensures there is no liquidation risk. At worst, creditors can convert bonds into MSTR shares and sell them on the market.

Even if MSTR stock crashes to zero, MicroStrategy won’t be forced to sell its Bitcoin because its earliest debt maturity date isn’t until February 2027—over two years from now.

This is the advantage of off-market leverage: it buys time.

As for interest payments, they won’t force a Bitcoin sale either. MicroStrategy’s convertible bonds have extremely low interest rates. For example, the bond maturing in February 2027 has a 0% interest rate.

Subsequent bonds carry similarly low rates of 0.625%, 0.825%, and one at 2.25%. These negligible rates make interest payments a non-issue.

MicroStrategy’s Bond Interest Rates (Source: BitMEX)

[MicroStrategy’s Subtle Challenge: Bitcoin Whales]

MicroStrategy and Bitcoin are now deeply intertwined, each fueling the other’s rise.

More companies are eager to emulate Michael Saylor, often dubbed the “David Copperfield of Bitcoin,” for his masterful strategy. Take MARA, a publicly listed Bitcoin mining firm. They recently issued $1 billion in Bitcoin convertible bonds, fully committed to buying Bitcoin during price dips.

Short sellers, beware: if more players follow MicroStrategy’s playbook, Bitcoin could surge like a runaway train. With no major resistance ahead, the sky is the limit.

Right now, MicroStrategy’s only real competition comes from the old-school Bitcoin whales.

As predicted, retail investors have largely exited, taking advantage of numerous opportunities to cash out—whether through Bitcoin price rallies or the explosive meme coin trend. It’s hard to believe anyone is left holding nothing.

This leaves the whales as the dominant force in the market. As long as they stay inactive, Bitcoin’s upward momentum is unlikely to falter. And if, by chance, these whales and MicroStrategy establish a tacit understanding, it could propel Bitcoin to unprecedented heights.

This dynamic underscores a key difference between Bitcoin and Ethereum:

Satoshi Nakamoto is believed to hold nearly 1 million early-mined Bitcoins, yet has remained completely silent. Meanwhile, the Ethereum Foundation occasionally sells 100 ETH just to “test market liquidity.”

As of today, MicroStrategy’s unrealized gains have reached $15 billion, driven by unwavering loyalty and belief in Bitcoin.

With its current profits, MicroStrategy will likely double down on its investments. There’s no turning back now, and many others are poised to follow suit. At this pace, Bitcoin’s mid-term target could well be $170K (not financial advice).

In a space dominated by elaborate conspiracies and secretive agendas, it’s refreshing to witness a true masterstroke of an open strategy. MicroStrategy’s approach is nothing short of remarkable.

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