The Investment Logic Behind the Big Pump of MSTR Stock

Since the beginning of this year, the stock price of MicroStrategy (MSTR) has soared from $69 to a peak of $543 last week, with a rise that far exceeds Bitcoin. Notably, even when Bitcoin experienced a pullback due to certain events, MSTR continued to maintain a strong upward momentum. This phenomenon prompts us to reevaluate the investment logic of MSTR: it is not simply riding the coattails of Bitcoin, but rather has its unique operating model and strategy.

The core strategy of MSTR: issuing convertible bonds to purchase Bitcoin

MSTR was originally a provider of business intelligence reporting systems, but this field has gradually declined. Today, the company's core strategy has shifted to raising funds through the issuance of convertible bonds, acquiring a large amount of Bitcoin, and incorporating it as an important component of the company's assets.

Introduction to Convertible Bonds

Convertible bonds are a special financing tool. After investors purchase this type of bond, they can choose to receive the principal and interest at maturity, or convert the bond into company stock at a predetermined price.

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

The operational logic of MSTR

• Use the funds raised from issuing convertible bonds to purchase Bitcoin.
• In this way, MSTR continuously increases its Bitcoin holdings, while the Bitcoin value per share is also rising.

For example, based on data from early 2024, the number of bitcoins corresponding to 100 shares of MSTR stock increased from 0.091 to 0.107, and by November 16, it had reached 0.12.

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 rise of 33.3%, while the total number of shares was only diluted by 13.2% during the same period. This means that the number of Bitcoins corresponding to every 100 shares rose from 0.091 to 0.107, gradually increasing the equity of the holdings.

Latest developments

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 number of bitcoins corresponding to every 100 shares of MSTR stock is approaching 0.12. From a bitcoin standard perspective, MSTR shareholders' "equity" in bitcoin is continuously increasing.

Characteristics and Risks of MSTR Mode

The operation model of MSTR is similar to using the leverage effect of Wall Street to accumulate Bitcoin:

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

This model is similar to a Ponzi scheme in some ways, where new funds are used to enhance the equity of old shareholders, maintaining operations through continuous fundraising.

Potential Risk Factors

• Increased fundraising difficulty: If the stock price performs poorly, subsequent convertible bond issuances may face challenges, affecting the sustainability of the model.
• Excessive dilution: If the speed of share issuance exceeds the speed of Bitcoin accumulation, it may lead to a reduction in shareholder equity.
• The model is being copied: If more and more companies imitate MSTR's model, increased competition may cause it to lose its uniqueness.

The strategic significance and investment 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 national strategic reserves of the United States may occupy 3 million of them. For large capital, "hoarding coins" is not just an investment behavior, but also a long-term strategic choice.

However, the current price position risk of MSTR is relatively high, and investors should operate cautiously:

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

Investment Insights

The case of MSTR provides us with valuable investment insights. It demonstrates the strong confidence of the U.S. capital markets in the long-term value of Bitcoin, as well as the innovative strategies to accumulate digital assets using financial instruments. Although this model may seem simple, it reflects profound insights into the future development of Bitcoin.

For investors, it is important to learn from experiences and continuously improve their cognitive levels and investment perspectives. Missing investment opportunities is not frightening; the key is to learn to analyze the underlying logic and apply it in future investment decisions.