The Logic and Risks Behind the Surge in MSTR Stock Price

The stock price of MSTR (MicroStrategy) rose from $69 at the beginning of the year to a peak of $543 last week, with an increase that even outperformed Bitcoin. Notably, even when Bitcoin experienced a pullback due to certain events, MSTR's stock price continued to maintain an upward trend. This phenomenon prompts us to rethink its investment logic: MSTR is not merely speculating on the Bitcoin concept, but has its unique operational model and strategic considerations.

The Core Strategy of MSTR: Issuing Convertible Bonds to Purchase Bitcoin

MSTR was originally a business intelligence reporting system company, but this business has gradually declined. Today, its core strategy is to raise funds by issuing convertible bonds, massively purchase Bitcoin, and make it a major component of the company's assets.

Convertible Bond Overview

Convertible bonds are a special financing instrument. Companies raise funds by issuing bonds, and investors can choose to receive their principal and interest at maturity or convert the bonds into company stock at a predetermined price.

• If the stock price rises significantly, investors may choose to convert their shares, leading to dilution of the company's stock.
• If the stock price performs poorly, investors may choose to withdraw their principal and interest, and the company will have to bear the corresponding capital costs.

The operational logic of MSTR

MSTR uses the funds raised from issuing convertible bonds to purchase Bitcoin. In this way, MSTR continually increases its Bitcoin holdings while enhancing the Bitcoin value per share.

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

In the first three quarters of 2024, MSTR increased its Bitcoin holdings from 189,000 to 252,000 (a growth of 33.3%) by issuing convertible bonds, while the total number of shares was only diluted by 13.2%. The number of Bitcoins corresponding to every 100 shares rose from 0.091 to 0.107, gradually increasing the equity in 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 trend, the number of Bitcoins corresponding to every 100 shares is approaching 0.12. From a coin-based perspective, MSTR shareholders' Bitcoin "equity" is continuously increasing.

MSTR: The "golden shovel" of Bitcoin

The operation model of MSTR is similar to "mining" Bitcoin by leveraging the effects of Wall Street.

• Continuously issuing bonds to purchase Bitcoin, increasing the per-share Bitcoin holdings by diluting shares.
• For investors, purchasing MSTR stock is equivalent to indirectly holding Bitcoin, and they can also enjoy leveraged gains from the stock price increase due to Bitcoin's rise.

This model is somewhat similar to a Ponzi scheme, using newly raised funds to enhance the interests of old shareholders, maintained through a continuous cycle of financing.

sustainability of the model

This model may face the following challenges:

• Financing difficulties: If the stock price stagnates, subsequent convertible bond issuance may become difficult, affecting the sustainability of the model.
• Over-dilution: If the speed of share issuance exceeds the speed of Bitcoin accumulation, it may lead to a reduction in shareholder equity.
• Mode replication: As more and more companies emulate the MSTR model, increasing competition may cause it to lose its uniqueness.

The Strategic Significance and Potential Risks of MSTR

In the long run, it is strategically significant for large capital in the United States to accumulate Bitcoin. Considering that the total supply of Bitcoin is only 21 million coins, the national strategic reserve of the United States may occupy 3 million of them. For large capital, "hoarding coins" is not only an investment behavior but also a long-term strategic choice.

However, the investment risk of MSTR may currently be greater than the returns:

• If the price of Bitcoin corrects, MSTR's stock price may experience a larger decline due to its leverage effect.
• Whether it can maintain a high growth model in the future depends on its financing ability and the market competitive 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 $3,000 to $5,000. Many believed the price was already too high, yet MSTR bought heavily at $10,000. As a result, Bitcoin soared to $20,000, breaking many people's expectations.

This time missing the investment opportunity in MSTR made us realize that the operational logic and cognitive depth of American capital tycoons are worth studying seriously. Although the MSTR model seems simple, it reflects a strong confidence in the long-term value of Bitcoin. Missing investment opportunities is not terrifying; the key is to learn from it and elevate our own level of understanding.