Author: Mindao, Source: Author's Twitter @mindaoyang
Let's talk about the big strategy of micro-strategy today.
Micro-strategy has really hatched the biggest golden egg in this cycle of the crypto circle, with a face profit of over $15 billion in less than two years.
It is not just a triple arbitrage of stocks, bonds, and cryptocurrencies, but the key is to turn the stock MSTR into a real Bitcoin in traditional finance (recently, the trading volume of MSTR has exceeded the total of Bitcoin ETFs), which can be called a "borrowed disguise" to reach the top.
Michael Saylor is neither a blue-blooded Wall Street background, nor can he be considered a crypto OG, but he has really hit the old master with a mess of punches.
Here I will briefly discuss several key parts of his trading structure design:
Stock/Crypto Relationship
There are two key flywheels between these two. One is the issuance of stock premium to purchase Bitcoin, driving up the price of Bitcoin, and improving its net asset value and earnings per share, which is a linear leverage;
The second flywheel is financing to buy cryptocurrencies, accelerating profit growth, expanding the valuation multiple (increasing P/B, P/E), and the stock price jumping from linear to exponential leverage, with the market capitalization and stock price rising faster than the price of Bitcoin itself.
Stock/Bond Relationship
The increase in MSTR's market capitalization has driven it to enter more indexes and more trading derivatives, increasing trading volume, reducing the cost of stock and bond financing, with a convertible structure that can be both debt and equity, further reducing the overall debt ratio.
Micro-strategy's convertible bonds are also a very sophisticated design (full of Buffett's wisdom).
Convertible bonds are basically medium to long-term bonds (5-year term, at least spanning 1 crypto cycle), most of which are zero-coupon, with no principal repayment during the term. This ensures that there is no pressure for partial repayment and interest payment during the term, further reducing the risk of debt default due to the downward spiral of cryptocurrency prices.
Even more impressive is that, unlike traditional convertible bonds, the choice of conversion or cash repayment is in the hands of Micro-strategy, not the convertible bond holders, fundamentally avoiding the default problem caused by the inability to repay the convertible bonds at maturity (the worst case scenario is full conversion). This financing premium capability is extraordinary.
Although it is generally believed that issuing debt increases the debt ratio, increases the risk premium, and is not conducive to the stock price, this convertible bond is essentially a "debt-equity" tool with full control in the hands of Micro-strategy. It is very friendly to the stock price/shareholders.
Crypto/Bond Relationship
The debt is denominated in US dollars, and in the Bitcoin-based position, the purchasing power tends to zero, and the conversion conditions are controlled by Micro-strategy. Borrowing a "debt" whose purchasing power tends to zero to buy Bitcoin, whose purchasing power is infinitely large, especially with a zero default risk structure, is a winning game in the long run.
After many years in the crypto circle and traditional finance, I really haven't seen such a master who can play the triple arbitrage of stocks, bonds, and cryptocurrencies so extremely.
Many people have speculated that the end of Micro-strategy may be the stock version of Luna. I think the overall risk structure of the two is not comparable at all, let alone the so-called death spiral.
As for when the flywheel stops spinning and the music stops, the key is how long the stock and single-stock net cryptocurrency premium can be maintained.
If the market trend breaks expectations, the supply of Bitcoin derivatives increases, and the premium of Micro-strategy's stock/cryptocurrency shrinks to within 1.2, this financing will be difficult to sustain. But Micro-strategy will still be the big winner.
The structural construction of Micro-strategy's long-term winning edge is truly comparable to Buffett's Berkshire Hathaway in the traditional finance world.
In terms of premium level, if MSTR can reach $1 trillion, it may be even easier than Ethereum reaching $1 trillion.
