Exploring the MSTR model in depth: the biggest variable of this round's bull run?

Question

Original author: HighFreedom (X: @highFree2028)

Is the biggest variable micro-strategy (referred to as MSTR below) in this Bull Market a pyramid scheme operation similar to LUNA's left foot stepping on the right foot? What is the essence of this company MSTR? Why is it said that the MSTR model will have a "catalytic" effect on BTC growth? Will the MSTR model break the four-year cycle or even eternal Bull Market of the crypto world? Through which dimensions can we observe the MSTR model and even the end of this cycle?

Note 1: The article involves a large number of charts and is divided into 7 chapters. Due to Twitter's lack of support for long articles, it is forced to be divided into 7 threads.

Note 2: 1, 2, 3 points are mainly about basic information. Friends who have little knowledge of MSTR can start from 1.

Note 2: The content of 4, 5, and 6 is a Depth analysis, and frens who are familiar with MSTR can start directly from 4.

(Basic Content)

Introduction to MSTR fundamentals: the company's original main business, shareholder structure, revenue situation
Core analysis of buying coins strategy: historical analysis of buying coins, cost and quantity of holding coins, company debt situation, core KPI (Bitcoin per share) of buying coins strategy.
Funds for the crazy buying of coins: 21/21 PLAN, which is a $42 billion coin buying plan, "ATM market price selling shares" and "Convertible bonds (usually CB)"

"Convertible bonds可转债" is one of the essential operations and also a core observation object for whether a spiral meltdown will occur in the future. This content will be analyzed in detail in the following sections.

(Depth Analysis)

The core of the game: CB basics, why MSTR's CB is so popular, who is buying MSTR's CB, what is the essence of CB,

Discussion of the MSTR mode: What does the premium of MSTR to BTC represent, and what is the nature of the MSTR company? What does the premium of MSTR represent? When to buy or sell MSTR stock?

When will the game stop: Will the dusk of the MSTR model and the end of BTC occur? What dimensions can we observe? If a spiral downturn occurs unfortunately, what will the situation be like?

(Key Time Point)

MSTR entered the key schedule of Nasdaq NQ100 this month.

（1/7）

(The picture shows a page in the 2024Q3 MSTR financial report, and the current MSTR holds 386,800 BTC)

Introduction to MSTR fundamentals:

The company's original main business: BI software, classified as "technology" on Bloomberg, with annual software revenue of about 4 billion US dollars

Shareholder Structure of the Company: According to the disclosed data at the end of 2024Q3, Boss Saylor is the largest shareholder with a 9.75% stake; the other top ten shareholders are mainly clients of various asset management companies or self-owned funds of asset management companies. However, it should be noted that for ordinary A-shares, Saylor's shares are B-shares, and each B-share has ten times the voting rights of an A-share, so currently Saylor still has the final say in the company.

Company's financial situation: There should be around 3 billion US dollars in cash on the books (just announced last Friday); Liabilities (mostly convertible bonds) are around 7 billion.

（2/7）

Core Strategy Analysis of Buying Coins:

Long-term bullish BTC/USD, continue to buy BTC. Utilizing internal cash accruals, equity, and debt, acquired 386,700 BTC at a price of about 22 billion USD (with a cost of about 56,849 USD), currently valued at around 36 billion USD at a BTC price of 95,000 USD. Reference: saylortracker.com

Long-term bullish BTC/USD, continue to buy BTC. The company started buying coins in the first round of bull market in September 2020, with an average price of 10419 USD and bought 16796 BTC.

Through the use of internal cash accruals, equity, and debt, an acquisition of 386,700 BTC was made at a price of approximately $2.2 billion. The cost was about $56,849 USD, and at the current BTC price of $95,000 USD, the value is around $36 billion.

reference: saylortracker.com

Company KPI core: Bitcoin per share (called BTC Yield in the financial report)

The core idea is that shareholders should not care whether I dilute everyone's interests by issuing more shares or buy coins with debt. As long as the BTC share per share in your hands continues to increase (don't worry about the short-term fluctuations in my stock price, anyway, I am going to buy coins everywhere)

Note: MSTR will discuss how to continue to increase BTC Yield in the following. reference: saylorcharts.com/?chart=btcYiel...

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Capital sources for the frenzy of buying coins: 21/21 PLAN, a future three-year plan to buy coins totaling 42 billion US dollars

There are usually two methods for a listed company to raise funds: one is to issue more shares and bring in more shareholders (equity financing); the other is to issue debt and borrow money from others (debt financing).

MSTR's ATM market price for selling shares: MSTR issued a one-time increase of 21 billion worth of shares on October 30, 2024. Here, everyone should note that it is a one-time issuance of a large number of shares, and the shares can be sold at any time during the intraday trading in the next three years without the need for prior announcement (referred to as At the market "ATM").

MSTR's convertible bonds issue convertible bonds (hereinafter referred to as CB): CBs are different from ordinary bonds in that they have both equity and debt characteristics. The following will discuss in detail, I believe this is also the core of MSTR's game.

According to the latest regulatory filing: 21 billion ATM stock quota has used 8.2 billion, 21 billion CB quota has used 3 billion. reference: microstrategy.com/financial-docu...

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The core of the game: through channels like CB, funds that are bullish on BTC but unable to participate have the opportunity to get on board.

Convertible bonds basic knowledge: Convertible bonds are bonds that can be converted into stocks under certain conditions. They are essentially a combination of corporate bonds and call options on company stocks. However, please note that in the event of bankruptcy and liquidation of the company, the order of repayment is regular bonds > convertible bonds > shareholders. Therefore, the order of repayment for convertible bonds is relatively lower (there is no free lunch in the world).

Take the $3 billion issued on 2024/11/21 as an example: 0Interest, principal protection (to some extent), 5 years, call options included, premium of 55%.

In layman's terms

Scenario 1 (Positive Scenario): Only when the stock price reaches $672 within five years, the bondholders can convert the bonds into stocks. If the stock price rises to $700, the profit ratio is (700 - 627) / 672 = 4.2%.

Scenario 2 (bad scenario): If within five years, the company's stock price has never reached $672, then the creditor can only wait for MSTR to return the cash after five years (for example, if they bought $100 million of CB, the creditor can only reluctantly receive the $100 million principal back at that time)

Who helps MSTR in issuanceCB: Major traditional investment banks such as Barclays.

Who is buying CB: Hedge funds and long-onlys that do Volatility strategy like BTC but cannot buy coins directly, including bond, insurance and other asset management companies.

To be honest, managing a hedge fund that focuses on Volatility strategies doesn't excite me. These people may have no faith in BTC at all. For example, when BTC's Volatility is high recently, they short vol; conversely, they go long vol.

What excites me the most here is that the largest insurance company in Germany, like Aliianz, with assets of around 2 trillion euros, has started to participate in BTC, and is most likely in a net long Position in BTC.

Why doesn't Aliianz buy coins directly: because the nature of a lot of funds determines that it cannot buy BTC

Imagine that you are a bond fund manager with $100 billion under management, and you are bullish on BTC. However, due to the nature of bond funds, you can only invest in government bonds and corporate bonds, which means you cannot buy BTC Spot or BTC call options. Additionally, you may find that the target return of your fund is only 6% or 7%, with the majority invested in government bonds. For MSTR, it is basically a super alpha in your portfolio.

At this point, MSTR said, 'Brother, buy the convertible bonds of my company. This product is linked to the rise and fall of BTC. And this product guarantees your principal, as long as the company does not go bankrupt, I will return the money to you after five years; if BTC rises by double, reaching your exercise price, for example, I take 70%, you take 30% (in a way similar to a real-life industrialist saying, 'Brother, I heard you are good at Cryptocurrency Trading. How about this, I'll give you 20 million, you help me with Cryptocurrency Trading, and we split the profits 55-45. But there is one requirement, I want to guarantee the principal').

This kind of product has a huge appeal to funds that are bullish on BTC but cannot participate at the moment. Products like CB open up a channel for insurance funds and bond funds to participate in the ups and downs of the BTC market. There is a great lack of such products in the current market, which is why CB's subscription is exceptionally popular (CB, which originally planned to issue 1.75 billion USD last month, ended up directly issuing 3 billion USD in the last two days due to overwhelming demand).

The essence of CB: Essentially, it accelerates the hierarchy of funds participating in BTC.

For hedge funds, Volatility is a good leg in long-short strategies. These people, to be honest, are not friends of us old suckers.

For bond funds and insurance funds, CB is equivalent to a product that allows us to be BTC long only and be part of the net long position family together.

CB inventory situation: There are currently six periods of CB in the market. Investors in the first five periods have made a lot of profit from the pump of the token price and MSTR stock price (this thread cannot contain images, you can check the market prices of convertible bonds in each period. The latest market price of the 2028 period is 224, with a yield of 124% for holders).

（5/7）

Discussion on the MSTR model: What does the premium of MSTR to BTC represent? When to buy and sell the stocks of this company? What is the essence of this company MSTR?

MSTR premium:

I think it represents the acceleration of BTC pump in the future period (the historical average premium is 75%. Now the premium has fallen from the high point a few days ago to about 2.5 currently).

When to buy and sell MSTR stocks:

If you think BTC will pump in the near future, then buy MSTR directly; on the contrary, if you think BTC price will stabilize in the future, then sell MSTR.

The essence of MSTR:

Based on BTC as the underlying asset, issuance of financial products that meet the needs of different income and risk funds (similar to what traditional investment banks do, helping with stock issuance and listing IPO, etc.)

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When does the game stop: the migration of BTC ownership and the catalytic role of MSTR

Accelerated migration of BTC ownership:

To be honest, I have been engaged in Cryptocurrency Speculation for 8 years, and my strong faith in BTC comes from two points:

Hedging is a good tool for human sovereign governments to over-print money: Since the introduction of unconventional monetary policies such as QE quantitative easing in Japan in the 1990s and the United States after 08, sovereign governments will print a large amount of money whenever they encounter problems. This thing is just like a drug addiction, once you get involved, it's hard to quit. Eventually, it will inevitably lead to a large excessive issuance of currency, and the underlying properties of BTC determine that it is the best tool available in the market to absorb excessive currency.
Accompanying the growth of BTC: I believe that BTC will continue to increase in market capitalization, and the circle of funds involved in BTC will also expand. This is what we call the transfer of BTC ownership.

High Net Worth Individual

MSTR has introduced funds that may not be able to participate in BTC for several years in advance through various financial instruments, which is to some extent an overdraft of the BTC price.

For example, the next cycle may be in 2028, when insurance funds and bond funds can participate in BTC. However, through tools like CB, funds that want to participate but cannot directly buy coins can be converted into on-exchange Spot long positions in a form similar to capital preservation. Now, in 2024, they have gotten on board.

Simply put, the price of the currency may have needed until the end of 2025 to rise to 150,000, but companies like MSTR may pull the price to 150,000 within 3 months.

When does the game come to an end:

But what if one day MSTR's leveraged Cryptocurrency Speculation comes to an end? I think it goes like this: If MSTR's subsequent issuance of bonds and other products fails to move forward, and has already greatly exhausted the future price increase of the currency, while at the same time there is no larger capital to take over to buy BTC, BTC may experience a terrifying downward spiral similar to LUNA.

For example, within a year, MSTR has pushed the price of the currency to 250,000. At this time, it's difficult to issue bonds because no one is buying. However, it will be troublesome if entities such as US pension funds and small sovereign governments with greater financial strength do not take over.

So, if one day I can give Saylor some advice: don't front run too fast, don't leverage too aggressively, otherwise the terrifying spiral downturn will cut off the ownership transfer path of BTC, and cause a great loss of vitality.

Finally, I would like to list my observation dimensions for everyone:

The dusk of the MSTR mode and the observation dimension of the BTC top:

The hotness of the Primary Market subscription for various products such as CB, etc. (if the Primary Market subscription for CB in the future is not so hot, then there may be cause for concern; it is best to find an investment bank to help MSTR issue CB, they are the first to know the pros and cons)
The premium and financing cost of CB issuance: CB is essentially a financing tool and has a financing cost. MSTR essentially sells its own stock call, which is a high-position shorting behavior of BTC; the funds buying CB are essentially buying this call. Everyone can see that in November, CB was issued at an exaggerated premium of 55%. If the subsequent premium becomes lower and lower, it actually means that the value of the call given to investors as a bonus is getting higher and higher, and the financing cost is getting lower.
The progress of getting on board with larger funds: If CB gradually cannot continue, then larger funds such as pension funds may need to take over. At this time, it is necessary to closely observe the attitudes and trends of these big brothers towards BTC.

Note: Originally I thought that the top of this market was basically combined with the external currency cycle and the internal OGdump situation; but as the MSTR mode gradually matures, I think it is necessary to incorporate when the MSTR mode comes to an end into the analysis framework and system.

（7/7）

Entering the Nasdaq timeline in July 2019

At the end of each year, the Nasdaq will make adjustments to its constituent stocks. MSTR currently meets all requirements.

Key Time 1:

After the close of the US stock market on December 13th: The Nasdaq Index Committee is about to announce the adjustment announcement for component stocks.

Critical Time 2:

December 23rd U.S. stock market opening day: MSTR officially included in the index and began trading

Finally, I would like to talk about the significance of MSTR being included in the Nasdaq.

Passive fund allocation: The Nasdaq has a radical scale of about $300 billion, and proportionate allocation is made according to market weighting. Approximately $1.5-2 billion may be passively invested in MSTR.
Expand BTC fund Consensus: Imagine that Chinese investors can open Alipay and buy a little bit of the Nasdaq fund, which essentially passively allocates a little bit of MSTR stock, and fundamentally passively allocates a little bit of BTC. In fact, I believe that the importance of BTC in the long term may be no less than the listing and trading of the US BTC SPOT ETF on January 10 this year.

Reference: mstr-tracker.com

Final

Please protect the BTC in your hands and welcome the bigger bull market in 2025. Don't easily give up your precious chips until the game is nearly over.

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