Bitcoin breaks through $98,000, with MicroStrategy's contribution being indispensable.

The price of Bitcoin has reached a new high, breaking through the $98,000 barrier, which is incredibly exciting. Undoubtedly, the rise in the 40K-70K range is mainly due to the launch of the Bitcoin ETF, while the rise in the 70K-100K range is attributed to the continuous buying by MicroStrategy(.

Currently, many people compare MicroStrategy to a Bitcoin version of Luna. This analogy feels somewhat inappropriate because Bitcoin is one of the most beloved cryptocurrencies for many, while Luna is one of the most disappointing projects.

Let's dive deeper into the relationship between MicroStrategy and Bitcoin:

• MicroStrategy and Luna are fundamentally different, with a higher margin of safety.
• MicroStrategy increases its Bitcoin holdings by issuing bonds and stocks.
• MicroStrategy's recent debt maturity date is in 2027, which is still quite a long time away.
• MicroStrategy's main risks come from Bitcoin whales.

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The Essential Difference Between MicroStrategy and Luna

MicroStrategy was originally a software company with a large amount of cash on hand. Starting in 2020, the company decided to invest its funds into Bitcoin. After exhausting its own funds, it began borrowing money to buy more Bitcoin by issuing corporate bonds.

Unlike Luna, MicroStrategy adopts a strategy of low-position dollar-cost averaging with leverage, essentially borrowing money to go long, and it has the right direction. The acceptance of Bitcoin far exceeds that of UST, and the impact of MicroStrategy on Bitcoin is also far lower than that of Luna on UST. Therefore, MicroStrategy can never be equated with Luna.

Financing Methods of MicroStrategy

To quickly raise funds, MicroStrategy issued a total of $5.7 billion in bonds, almost all of which were used to buy Bitcoin.

MicroStrategy issues a type of convertible bond. Bondholders have the right to convert the bonds into company stock, divided into two phases:

1. Initial Stage:

   • When bond prices drop more than 2%, they can be converted into stocks and realized.
   • When bond prices are normal or rising, they can be sold in the secondary market.

2. Later stage:

   • When the bond is about to mature, you can choose to take back cash or convert it into stock.

For creditors, this is a guaranteed profitable deal:

• Bitcoin has dropped and the company has money, cash can be retrieved.
• Bitcoin is down and the company has no money, converting to shares can preserve capital.
• Bitcoin is rising, allowing for greater stock returns.

This low-risk, high-return scheme has enabled MicroStrategy to successfully raise funds.

As the price of Bitcoin rises, the stock price of MicroStrategy also increases. Currently, the company's daily trading volume has exceeded that of NVIDIA. In addition to issuing bonds, MicroStrategy can also raise funds by issuing additional shares.

Last week, Bitcoin rose from $80,000 to $98,000, thanks to the $4.6 billion raised by MicroStrategy through its stock issuance, which was fully invested in Bitcoin.

The operational model of MicroStrategy can be summarized as: buy Bitcoin → stock price rises → borrow to buy more Bitcoin → Bitcoin rises → stock price rises further → continue to borrow → buy more Bitcoin → and so on.

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MicroStrategy's Debt Situation

Despite concerns that MicroStrategy may fall into a predicament similar to Luna, this is not the case.

According to statistics, MicroStrategy's average cost of holding Bitcoin is $49,874, currently approaching a 100% floating profit, with a very high margin of safety. Even if the price of Bitcoin plummets by 75% to $25,000, it will not pose a fatal blow to the company.

MicroStrategy uses over-the-counter leverage and does not have a forced liquidation mechanism. Even if creditors convert bonds into stocks and sell them, the company is not required to sell Bitcoin.

More importantly, the earliest debt maturity date that MicroStrategy needs to repay is February 2027, which is more than 2 years away.

Due to the use of convertible bonds, MicroStrategy's interest costs are very low. The bond maturing in February 2027 has an interest rate of 0%, and several other debts have rates of only 0.625%, 0.825%, etc., with only one at 2.25%. Therefore, interest pressure is not a concern.

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Major Risks Faced by MicroStrategy

Currently, MicroStrategy and Bitcoin have formed a mutually influential relationship. More and more companies are beginning to emulate MicroStrategy's operational model. For example, the publicly listed Bitcoin mining company MARA recently issued $1 billion in convertible bonds to purchase Bitcoin.

If more institutions follow in the footsteps of MicroStrategy, the price of Bitcoin may continue to rise. Currently, MicroStrategy's biggest competitors are those early investors who hold large amounts of Bitcoin. As long as these large holders do not sell off in large quantities, it will be difficult to stop the upward momentum of Bitcoin.

As of now, MicroStrategy's unrealized gains from holding Bitcoin have reached $15 billion. Due to the substantial profits, the company is likely to continue increasing its investment, making it difficult to turn back. According to current trends, the mid-term target price for Bitcoin may be around $170,000.

The operation of MicroStrategy can be considered a top-notch positive strategy, which is truly impressive.

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