Author: 0xjs@Jinse Finance
Bitcoin breaks $80,000! Bitcoin breaks $90,000! Bitcoin breaks $95,000! Bitcoin breaks $99,000!
Clearly, Bitcoin is bound to break the $100,000 mark very soon.
The direct reason for the sharp rise in prices is that someone is buying in with real money, after all, "Money Talks".
In this round of the crypto bull market, crypto tokens are severely divided, with the two brightest sectors being Bitcoin and Solana. Solana's rise is mainly driven by the influx of crypto players into MEME, while Bitcoin's rise is mainly driven by capital from US Bitcoin ETFs and some listed companies, especially MicroStrategy. This article will focus mainly on MicroStrategy.
Jinse Finance reporters spent an evening on the US SEC website on November 21, reviewing the documents submitted by MicroStrategy since 2021, and deeply analyzing MicroStrategy's behavior of buying Bitcoin and the source of funds.The conclusion is that MicroStrategy is an enhanced version of "Grayscale + Luna".
First, let's look at the overall situation of MicroStrategy, then analyze the source of funds for MicroStrategy's purchase of Bitcoin, and finally compare it with Grayscale and Luna. As follows.
MicroStrategy Fearless of Bulls and Bears: Spent Over $16 Billion to Firmly Buy Bitcoin
Since implementing the Bitcoin reserve strategy in September 2020, MicroStrategy has steadfastly executed the Bitcoin reserve strategy through cycles, regardless of bulls and bears, such as buying Bitcoin at over $59,000 in April and November 2021 during that bull market.
MicroStrategy continues to buy BTC
Jinse Finance reporters found that as of November 22, 2024, MicroStrategy has cumulatively spent $16.58 billion to buy Bitcoin, and currently holds 331,000 Bitcoins, with a Bitcoin holding value of nearly $33 billion.
Since the successful launch of the Bitcoin ETF in January 2024, the Bitcoin ETF has managed over 1.24 million Bitcoins, with managed assets exceeding $120 billion and a total net inflow of about $30.3 billion. Bitcoin ETFs are an investment target for many investors, not from a single investor.
As far as I can see, MicroStrategy may be the single entity that has spent the most on buying Bitcoin.
So the question is, where does MicroStrategy's huge amount of funds for buying Bitcoin come from?
Jinse Finance reporters have reviewed the reports submitted by MicroStrategy to the US SEC, and its funds mainly come from two sources: Convertible Senior Notes and At-the-Market Equity Offerings.
Among them, Convertible Senior Notes are aimed at qualified institutional investors, and At-the-Market Equity Offerings are directly aimed at the secondary market.
Convertible Senior Notes: $7.26 Billion Qualified Institutional Investors
Here are the notes issued by MicroStrategy since 2020, except for the $500 million senior secured notes issued in June 2021, the rest are all Convertible Senior Notes.
The $3 billion in Convertible Senior Notes issued by MicroStrategy on November 21, 2024 can be used to buy Bitcoin at any time. Perhaps it will be when Bitcoin breaks $100,000 that MicroStrategy uses this $3 billion to buy Bitcoin.
Understanding what Convertible Senior Notes are, you will find that it is really a good financial instrument.
Convertible senior notes are a special debt security that includes an option to convert the notes into a predetermined number of the issuer's shares. If the stock goes up, you can convert it into stock, and if the stock price is low, you can pay off the debt according to the debt claim. Moreover, convertible senior notes have priority over all other debt securities issued by the same organization and can receive priority compensation. Therefore, it is a bond with high returns above and a bottom guarantee below.
The important thing is that convertible senior notes generally have mandatory redemption clauses. After the prohibition redemption period specified in the terms has passed or the early redemption conditions are triggered, the issuer can initiate a mandatory redemption. Before the specified redemption date, investors need to convert the convertible bonds into the company's stock, otherwise the issuer has the right to forcibly redeem the convertible bonds at the price of the bond par value plus accrued interest. In most cases, investors will actively convert to stocks.
Taking the 2025 Convertible Notes already redeemed by MicroStrategy as an example, the maturity date of the 2025 Convertible Notes is December 15, 2025. But MicroStrategy issued an announcement on June 13, 2024, requiring the holders of the 2025 Convertible Notes to convert the notes by 5:00 pm New York time on July 11, 2024, at the applicable conversion rate of 2.5126 shares of MicroStrategy Class A common stock per $1,000 principal amount (reflecting a conversion price of $397.99 per share). Otherwise, MicroStrategy will forcibly redeem all outstanding notes on July 15, with a redemption price equal to the principal plus accrued and unpaid interest.
And MicroStrategy's stock price was around $1,300 at the time (MicroStrategy completed a 1:10 stock split on August 8, with a pre-split price of $1,300), so it is obvious that the creditors will choose to convert the debt into stock. After the creditors get the stock, they complete the arbitrage.
It can be said that the most important motivation behind the convertible bonds is for the issuer to get the investors to actively choose to convert the debt into equity, so that the issuer does not have to pay cash to repay the debt.
At-the-Market Equity Offerings: Nearly $10 Billion Secondary Market
Here are the data on MicroStrategy's market stock issuance over the past 4 years. In the past 4 years, MicroStrategy has directly raised $9.8235 billion in the secondary market through the issuance of new shares, and all of these funds have been used by MicroStrategy to buy Bitcoin.
At-the-Market Equity Offering (ATM Equity Offering) refers to the subsequent stock issuance by a listed company to raise funds after the IPO. In ATM issuance, the listed company sells new shares issued at the current market price to the secondary trading market through designated brokers over a period of time. The brokers sell the company's shares in the open market to obtain cash proceeds, which are then delivered to the issuing company.
Still taking MicroStrategy's ATM Equity Offering as an example to explain. On August 1, 2024, MicroStrategy signed a sales agreement ("August 2023 Sales Agreement") with brokers TD Securities (USA), The Benchmark Company, BTIG, Canaccord Genuity, Maxim Group and SG Americas Securities. Under this agreement, MicroStrategy can from time to time issue and sell its Class A common stock through the sales agents, with a total issuance price of up to $2 billion. According to the 8-K filed by MicroStrategy with the US SEC on November 11, 2024, MicroStrategy has issued a total of 7.854647 million shares, raising $2.03 billion, all of which was used to buy 27,200 Bitcoins.
On October 30, 2024, MicroStrategy announced the 21/21 plan, saying it will raise $42 billion in capital in the future, including $21 billion in equity and $21 billion in fixed income securities, for investment in Bitcoin. MicroStrategy also disclosed on the same day that MicroStrategy and TD Securities (USA), Barclays Capital, The Benchmark Company, BTIG, LLC, Canaccord Genuity, Cantor Fitzgerald & Co., Maxim Group, Mizuho Securities USA, and SG Americas Securities have reached a sales agreement to issue $21 billion in MicroStrategy stock at market price. The 8-K filed by MicroStrategy with the SEC on November 18, 2024 shows that between November 11 and 17, MicroStrategy sold 13.594 million shares, raising about $4.6 billion, all of which was used to buy 51,780 Bitcoins.
According to MicroStrategy's plan, the brokers still have about $15.3 billion in new MicroStrategy shares available for sale.
Why MicroStrategy is an Enhanced Version of "Grayscale + Luna"
Now that we are familiar with MicroStrategy's "convertible bonds" and "at-the-market stock issuance" magic, let's think back, aren't they very similar to Grayscale and Luna in the last bull market, but an enhanced version?
Grayscale vs. Convertible Bonds:
Reviewing the operating mechanism of Grayscale before it was converted into an ETF, Grayscale trust shares were only issued to qualified investors, who could use off-exchange cash to purchase GBTC shares (the underlying of the Grayscale trust needs to be corresponding Bitcoin assets) or exchange physical Bitcoin for GBTC shares, and after a 6-month lockup period, they could trade publicly to complete the arbitrage. At the same time, the GBTC shares and the underlying Bitcoin assets are isolated, and investors cannot redeem.
MicroStrategy's convertible senior notes are also aimed at qualified investors, with investors using off-exchange cash to buy the convertible notes and then converting them into MicroStrategy shares to complete the arbitrage when they are forcibly redeemed. The convertible senior notes are also isolated from MicroStrategy's Bitcoin.
In the Bitcoin bull markets of 2020 and 2021, the premium of GBTC attracted a large amount of arbitrage capital, and GBTC once accumulated more than 650,000 Bitcoins, which was called the "open bull market" by many industry insiders at the time.
In this bull market, MicroStrategy has already attracted more than $7 billion in qualified institutional investor funds through convertible bonds, and MicroStrategy's 21/21 plan is also preparing to issue more bonds.
The difference is that MicroStrategy's convertible bonds have a very long maturity, with the nearest maturity being in 2027, which is enough to last until the next cycle. If necessary, MicroStrategy can fully redeem the convertible bonds, allowing investors to convert the convertible bonds into virtually zero-cost newly issued MicroStrategy shares, without MicroStrategy having to actually pay back the money. Even if they are not redeemed until maturity, MicroStrategy can issue new convertible bonds to replace the old ones, just as MicroStrategy used the 2028 Convertible Notes issued on September 20, 2024 to redeem the 2028 Secured Notes in cash. Clearly, MicroStrategy's convertible bonds are more stable.
Luna Vs. Market Price Stock Issuance:
In the Luna case, burning $1 of LUNA can mint $1 of algorithmic stablecoin UST. As long as the LUNA price rises, more UST can be minted, and with more UST, more Bitcoin can be purchased as reserves to stabilize 1UST=1USDT. Luna is directly open to retail investors without permission.
MicroStrategy's market price stock issuance is very similar, also directly targeting the secondary market retail investors. The higher MicroStrategy's stock price, the more US dollars it can raise through market price stock issuance, and the more US dollars it can use to buy more Bitcoin. "Left foot on right foot" all the way up. After the Bitcoin ETF was approved in January 2024, confirming the bull market, MicroStrategy's net asset premium (market price per share/corresponding Bitcoin value-1) has been climbing all the way to 2.7. Currently, MicroStrategy holds a total of 331,200 Bitcoins, worth about $32.84 billion, while MicroStrategy's total market value has at one point exceeded $100 billion.
Luna and UST can be minted bidirectionally, and if UST depegs, arbitrageurs can buy UST at a discount and mint LUNA at 1UST=1USDT, forming a "death spiral" and causing LUNA to collapse. In fact, if the Luna Foundation Guard (LFG) had bought more Bitcoin earlier in the uptrend cycle (it only bought $1.5 billion worth of Bitcoin), and if UST to LUNA could be temporarily minted unidirectionally, Luna might not have collapsed.
MicroStrategy goes even further, MicroStrategy's market price stock issuance is unidirectional and will not fall into a death spiral, and it is almost zero-cost. MicroStrategy is clearly safer than Luna. Even during the 2022 bear market, MicroStrategy's net asset premium was at least 60% at its lowest.
As long as there are people willing to buy the market price stock issuance of MicroStrategy shares, the more Bitcoin MicroStrategy buys during its high premium NAV periods, the thicker MicroStrategy's safety cushion. Taken to the extreme, MicroStrategy's market value could be completely equal to its Bitcoin value, and there would be no risk at all.
In summary, can we completely say that MicroStrategy is an enhanced version of "Grayscale+Luna"?
Conclusion: Triple Maximalism
At the Bitcoin conference held in Nashville at the end of July 2024, MicroStrategy CEO Michael Saylor delivered a keynote speech on the "Bitcoin Revolution".
After four years of practice, he proposed a methodology for individuals, companies, institutions and countries to respond to the Bitcoin revolution, putting forward a strategy of triple maximalism. For companies, it is to buy Bitcoin through three channels - cash flow, issuing stocks when the stock price is overvalued, and issuing debt when interest rates are low.
This is what he said, and this is what he did.
MicroStrategy has already accumulated 331,200 Bitcoins.
