Since October 2024, Strategy (MSTR)'s stock price has experienced dramatic fluctuations. It soared from $188 to $540, achieving nearly a threefold increase, before falling back and stabilizing in the lower range of $300.
Behind this stock price trend are a series of important measures driven by the company's founder Michael Saylor, including renaming the company to Strategy, purchasing over 506,000 bitcoins (BTC), and issuing two new preferred stocks STRK and STRF.
However, there are many inaccurate interpretations about Strategy's operations in the market. To help investors more clearly assess the sustainability of Saylor's bitcoin reserve strategy, we attempt to simplify its core logic.
Saylor's Bitcoin Reserve Strategy: Two Core Points
Saylor's financial strategy can be summarized in the following two points:
1. Selling Stock Options and Obtaining One-time Earnings
Strategy sells purchase or conversion options for MSTR stocks, setting the strike price between 30% to 300% of the current stock price, and collecting all earnings in advance through structured transactions. This is mainly achieved by issuing convertible bonds and preferred stocks STRK and STRF.
2. Issuing Additional Stocks at Appropriate Moments
Using the At-the-Market (ATM) mechanism to issue MSTR stocks when market conditions are favorable, to further raise funds.
It's worth noting that Saylor has not explicitly planned to repay the principal of these options or bonds. His core goal is to maintain the long-term operation of the financing plan while paying interest, until MSTR's stock price rises to the relevant strike price.
The core advantage of this strategy lies in its highly flexible financing method. Using this strategy, Saylor can choose the best financing tool based on market conditions:
· Issue convertible bonds when implied volatility is high;
· Issue stocks through the ATM mechanism when MSTR's net asset value (NAV) premium is high;
When neither condition is met, issue more preferred stocks (such as STRK or STRF).
The outside world may be concerned about the high leverage risk of this strategy, but data shows these concerns are unfounded. Here are key financial data for MSTR:
· Market Value: $85 billion;
· Bitcoin Holdings Market Value: Approximately $44 billion (506,000 BTC);
· Total Debt: $8.2 billion, with an annual interest rate of only 0.421%, annual interest expense of about $34 million;
· Preferred Stock Dividend Expenditure: STRK $58.4 million annually, STRF $85 million annually.
By analyzing these ratios, it can be discovered that Saylor's leverage use is actually very limited, with extremely low debt costs.
Bitcoin Reserve Strategy vs. Traditional Banking Model
Strategy's bitcoin reserve strategy can be compared to the traditional banking model to some extent. The core operating logic of both is as follows:
Traditional Banking Model
Banks further amplify leverage through the fractional reserve system to increase returns, but this model occasionally leads to bank failures.
Receive customer deposits; use deposit funds to purchase "safe" government-backed debt (such as Treasury bills, mortgage-backed securities, etc.); pay depositors interest lower than the returns on debt investments.
Bitcoin Reserve Strategy
Unlike traditional banks, Strategy's bitcoin reserve strategy does not use excessive leverage, because if problems arise, the government will not provide similar bailouts to the banking industry.
Raise funds (similar to banks receiving deposits); use raised funds to purchase bitcoin (instead of government-backed debt); pay MSTR stock returns and periodic interest or dividends to investors.
Although the operational methods differ, the core goal of both models is to generate profits through fund management. Banks rely on net interest margins (the difference between debt investment returns and deposit interest), allowing investors to benefit from part of the debt interest passed through banks. Bitcoin reserve companies, however, rely on bitcoin's capital appreciation, allowing investors to benefit from bitcoin price volatility. This appreciation mainly comes from bitcoin price increases or dollar depreciation relative to bitcoin.
Future Potential of Bitcoin Reserve Strategy
Michael Saylor is one of the most steadfast advocates of the bitcoin reserve strategy. His asset management model has successfully attracted imitation by many companies and has prompted the US government to begin exploring similar reserve strategies. The continued rise of MSTR and bitcoin prices has become the best "advertisement" for this strategy, further promoting market recognition of the bitcoin reserve concept.
Although currently only a minority truly understand and accept Saylor's strategy, the market influence and sustainability of this strategy are increasing with the development of bitcoin and MSTR. Market attention and feedback, in turn, drive the strategy's success. This "reflexivity" may bring more long-term development potential to the bitcoin reserve strategy.
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