15 billion dollar conspiracy: Where will MicroStrategy send Bitcoin?

Author: 0xTodd

First of all, I'm excited that our beloved Bitcoin has reached $98,000!

There is no doubt that the hero of the $40K-$70K range is Bitcoin's ETF, while the hero of the $70K-$100K range is MicroStrategy.

Now many people liken MicroStrategy to the BTC version of Luna, which makes me a bit uncomfortable because Bitcoin is my favorite cryptocurrency, while Luna happens to be my least favorite.

I hope this post helps everyone better understand the relationship between MicroStrategy and Bitcoin.

First, a few conclusions at the beginning:

• MicroStrategy is not Luna; it has a much thicker safety cushion.
• MicroStrategy increases its Bitcoin holdings through bonds and selling shares.
• MicroStrategy's next debt repayment date is in 2027, which is still more than 2 years away.
• The only soft threat to MicroStrategy is Bitcoin whales.

MicroStrategy is not Luna; it has a much thicker safety cushion than Luna

MSTR Net Value vs Bitcoin Price

MicroStrategy was originally a software company with a lot of unrealized gains and did not want to invest in production anymore, so it began to shift from real to virtual, starting to buy Bitcoin out of its own pocket since 2020.

Later, MicroStrategy bought up all the cash on its balance sheet and began to leverage. Its method of leveraging is through over-the-counter (OTC) leverage, determined to borrow money to buy Bitcoin by issuing corporate bonds.

The essential difference between it and Luna is that Luna and UST printed each other, and UST was essentially meaningless unanchored printing, barely maintained by a 20% fake interest rate.

However, MicroStrategy is essentially dollar-cost averaging at the bottom + leverage, which is standard borrowing to go long, and it has bet in the right direction.

The adoption of Bitcoin far exceeds that of UST, and MicroStrategy's impact on Bitcoin is significantly lower than that of Luna on UST. It's a simple principle: a daily interest rate of 2% is a Ponzi scheme, while an annual interest rate of 2% is a bank; quantitative change leads to qualitative change, and MicroStrategy is not the only factor determining Bitcoin, so MicroStrategy is definitely not Luna.

MicroStrategy increases its Bitcoin holdings through bonds and selling shares

To quickly raise funds, MicroStrategy has issued multiple debts totaling $5.7 billion (for a more intuitive understanding, this is equivalent to 1/15 of Microsoft's debt).

Almost all of this money is used to continuously increase its Bitcoin holdings.

Everyone has used on-exchange leverage; you need to use Bitcoin as collateral for the exchange (and other users in the exchange) to lend you money. However, OTC leverage is different.

All creditors in the world only worry about one thing: not being repaid. Without collateral, why are people willing to lend money to MicroStrategy OTC?

MicroStrategy's bond issuance is quite interesting; over the past few years, it has issued a type of convertible debt.

This convertible bond is interesting; let’s take an example:

Bondholders have the right to convert their bonds into MSTR shares, divided into two phases:

1. Initial Phase:

• If the trading price of the bond drops >2%, creditors can exercise their rights to convert the bond into MSTR shares and sell them to break even;
• If the trading price of the bond remains normal or even rises, creditors can sell the bond in the secondary market at any time to break even.

2. Later Phase: As the bond approaches maturity, the 2% rule no longer applies; bondholders can take cash and leave or directly convert the bond into MSTR shares.

Let’s analyze this; for creditors, this is generally a risk-free business.

• If Bitcoin drops and MSTR has cash, creditors can get cash back.
• If Bitcoin drops and MSTR has no cash, creditors still have a final safety net, which is to convert to shares to realize their investment;
• If Bitcoin rises, MSTR will rise, and creditors can give up cash to receive more stock returns.

In short, this is a trade with a high lower limit and a very high upper limit, so MicroStrategy has successfully raised money.

Fortunately, or rather, loyally, MicroStrategy chose Bitcoin.

And Bitcoin has not let it down.

2024 MicroStrategy Stock Price Trend

As Bitcoin continues to rise, the Bitcoin that MicroStrategy accumulated early on has also increased in value. According to the old and classic stock principle, the more assets a company has, the higher its market value should be.

Therefore, MicroStrategy's stock price has skyrocketed.

MicroStrategy's daily trading volume has now surpassed that of this year's absolute star, Nvidia. Thus, MicroStrategy now has more options.

Now MicroStrategy not only relies on issuing bonds but can also directly issue new shares for sale to raise money.

Unlike many meme coins or Bitcoin developers who do not have minting authority, traditional companies can issue new shares after following the relevant procedures.

Last week, Bitcoin's rise from just over $80K to the current $98K was aided by MicroStrategy. Indeed, MicroStrategy issued new shares and sold them for $4.6 billion.

PS: Companies with trading volumes exceeding Nvidia naturally have this liquidity.

Sometimes, you admire a company for making great profits, and you need to respect its great courage.

Unlike many crypto companies that sell off immediately for cash, MicroStrategy maintains a grand vision as always. MicroStrategy reinvested all the money from selling these shares back into Bitcoin, pushing Bitcoin to $98K.

By now, you should have understood MicroStrategy's magic:

Buy Bitcoin → Stock price rises → Borrow to buy more Bitcoin → Bitcoin rises → Stock price rises further → Borrow more debt → Buy more Bitcoin → Stock price continues to rise → Issue new shares and sell for cash → Buy more Bitcoin → Stock price continues to rise…

Presented by the great magician MicroStrategy.

MicroStrategy's next debt repayment date is in 2027; we still have at least 3 years

As long as there is a magician, there will be a time to expose the magic.

Many MSTR shorts believe that we have now reached the standard left side, even suspecting that it has reached the Luna moment.

However, is that really the case?

According to recent statistics, MicroStrategy's average cost of Bitcoin is $49,874, which means it is currently close to a 100% unrealized gain, providing a super thick safety cushion.

Let’s assume the worst-case scenario; even if Bitcoin drops 75% from its current level (which is almost impossible), falling to $25,000, what would happen?

MicroStrategy borrowed through OTC leverage, which has no liquidation mechanism. Angry creditors can at most convert their bonds into MSTR shares at the specified time and then angrily dump them into the market.

Even if MSTR is driven to zero, it still does not need to be forced to sell these Bitcoins because the earliest debt that MicroStrategy borrowed is due in February 2027.

Mark my words, this is not 2025, nor 2026; it is Tom's 2027.

This means that we have to wait until February 2027, and Bitcoin must crash, and if no one wants MicroStrategy's stock anymore, then MicroStrategy will need to sell part of its Bitcoin only in February.

All things considered, there are still more than 2 years left to keep playing music and dancing.

This is the magic of OTC leverage.

You may ask, could MicroStrategy be forced to sell Bitcoin due to interest?

The answer is still no.

Due to MicroStrategy's convertible bonds, creditors generally have a risk-free investment, so its interest rates are quite low. For example, the bond maturing in February 2027 has an interest rate of 0%.

Creditors are purely interested in MSTR's stock.

The subsequent debts it issued also have interest rates of 0.625%, 0.825%, and only one is 2.25%, which has little impact, so there is no need to worry about its interest.

MicroStrategy's Main Bond Interest Rates, source: bitmex

MicroStrategy's only soft threat is Bitcoin whales

At this point, MicroStrategy has become mutually causal with Bitcoin.

More companies are preparing to start learning from the great maneuvering of Bitcoin's David Copperfield (Saylor).

For example, a listed Bitcoin mining company, MARA, has just issued $1 billion in convertible bonds specifically to buy the dip.

So I think shorts should be cautious; if more people start to emulate MicroStrategy, Bitcoin's momentum will run wild, as there is a vacuum above.

Thus, MicroStrategy's biggest opponent now is only those ancient Bitcoin whales.

As many have predicted before, the Bitcoin in retail hands has already been handed over; after all, there are too many opportunities, such as the meme trend; I just don't believe everyone is empty-handed.

So there are only these whales in the market; as long as these whales do not move, this momentum is hard to stop. If we are a bit luckier, if the whales and MicroStrategy form some small tacit understanding, it will be enough to push Bitcoin towards a greater future.

This is also a significant difference between Bitcoin and Ethereum: Satoshi theoretically owns nearly 1 million early-mined Bitcoins but has been silent to this day; while the Ethereum Foundation, for some reason, sometimes particularly wants to sell 100 ETH to test liquidity.

As of today, MicroStrategy has achieved an unrealized gain of $15 billion, relying on loyalty and faith.

Since it is making money, it will increase its investment; it cannot turn back, and more people will follow suit. According to the current momentum, $170K is the mid-term target for Bitcoin (not financial advice).

Of course, we are used to seeing conspiracy groups design conspiracies every day in memes, and occasionally seeing a real top-level conspiracy is truly admirable.