Rachel, Jinse Finance
In this bull market, MicroStrategy has become an undisputed star company due to its frantic Bit purchases.
MicroStrategy's current Bit purchase behavior can be simply summarized as: issuing convertible corporate bonds to raise funds from the public, and then using the raised funds to purchase Bit as the company's reserve. Due to the continuous rise of Bit, MicroStrategy's valuation has risen, and its stock price has risen.
This strategy is a win-win for both the company and the bondholders who purchased the convertible bonds. The company's valuation has achieved a spiral upward, while the bondholders either get their principal back with interest, or enjoy the rise in stock price after the bonds are converted into MicroStrategy's stocks.
The risks are transferred to those who later purchased MicroStrategy's stocks. As long as Bit can continue to rise, this debt-to-Bit strategy can continue to be implemented. MicroStrategy, which started buying Bit in 2020, has seen its stock price rise more than 20 times.
Seeing the huge profits behind MicroStrategy's debt-to-Bit strategy, many companies have started to imitate it. These companies are mostly not in the Block industry, but they have also seen their stock prices rise with the rise of Bit prices due to their Bit purchases.
MicroStrategy's stock price - a multiplier of Bit price
In 2020, MicroStrategy began to purchase Bit, and it was also the first US-listed company to integrate Bit into its reserve assets.
MicroStrategy announced its first acquisition, which included about 21,000 BTC, worth more than $250 million, when the price of Bit was less than $10,000.
Initially, it used cash to make the purchases, and later turned to raising funds through the issuance and sale of stocks and convertible bonds.
MicroStrategy currently holds more than 380,000 BTC, and in its latest purchase, it bought about $5.4 billion worth of Bit at an average price of $97,862 per Bit.
MicroStrategy was originally an intelligent software company, but after buying Bit, its image in the outside world has become that of a "shadow company" of Bit. From October 2000 to September 2020, MicroStrategy's stock price remained below $20 per share. But with its continuous purchase of Bit, its stock price has begun to deviate from its own business, and has become a Bit concept stock instead.
Also benefiting from the strategy of actively buying Bit in recent years, MicroStrategy's stock price has soared more than 20 times from $20 in 2020 to the present. MicroStrategy's stock price has become a multiplier of Bit's price, and its growth in recent years has far exceeded that of Bit.
Deconstruction of the MicroStrategy model
In the early years, MicroStrategy used cash to directly purchase Bit, and now it is issuing convertible bonds to purchase Bit. The process and principle of MicroStrategy issuing bonds to buy Bit and then selling stocks are as follows:
I. Issue convertible bonds: MicroStrategy chooses to privately place convertible preferred notes to qualified institutional buyers to raise funds.
II. Attract investors to purchase convertible bonds: Although MicroStrategy's convertible bond coupon rate is low and the conversion price is high, it still has appeal to some investors, for the following reasons:
a. Low risk: Even if not converted, investors can get back the principal upon maturity, unless MicroStrategy goes bankrupt.
b. Option value: Investors have the option to choose within six years, and can execute the conversion once MicroStrategy's stock price rises above the agreed price. From the option market, the cost is relatively low.
III. Use the funds to purchase Bit: MicroStrategy will use the funds raised from the issuance of convertible bonds to purchase Bit, continuously increasing its Bit holdings.
IV. Sell stocks: When the price of Bit falls, MicroStrategy may sell stocks to cope with it. On the one hand, the sale of stocks can provide the company with additional funds to meet debt repayment or other funding needs, in order to maintain the company's financial stability; on the other hand, by adjusting the holding ratio of stocks and Bit, the asset allocation can be balanced and the risks brought by Bit price fluctuations can be reduced.
V. Synergy and impact of the overall strategy:
a. Stock-Bit relationship: Issuing stocks at a premium to buy Bit drives up the price of Bit, which in turn increases the company's net asset value and earnings per share, forming a positive feedback loop. In addition, financing to buy Bit accelerates the growth of profits, expands the valuation multiple, and drives the stock price to jump from linear growth to exponential, with the market value and stock price rising faster than the price of Bit itself.
b. Stock-Debt relationship: The rise in MicroStrategy's market value has led to its inclusion in more indexes, increased trading of derivatives, and increased trading volume, which has reduced the cost of stock and debt financing. Its convertible bond design is unique, with the choice of conversion or cash repayment in the hands of MicroStrategy, avoiding the default problem caused by the inability to repay the convertible bonds at maturity, essentially becoming a "debt-to-equity" tool that is friendly to the stock price and shareholders.
c. Bit-Debt relationship: Debt is denominated in US dollars, and its purchasing power tends to zero in the Bit-based position. However, the active right of the convertible conditions is in the hands of MicroStrategy, and it uses this special "debt" to buy Bit. From a long-term perspective, as long as the price of Bit rises, the company has the opportunity to obtain rich returns, and the risk is controllable.
Companies learning from MicroStrategy
Just by buying Bit, the stock price can be multiplied by 20 times, and countless companies are envious and have also started to learn from MicroStrategy.
For these companies, the most direct short-term impact is that although the company's debt has increased, it has also obtained a cash inflow, which helps to alleviate the company's funding pressure. With the rise of Bit, the value of the company's Bit assets has also risen, and for listed companies, their stocks have also become Bit concept stocks, rising with the rise of the Bit market.
Especially in the second half of this year, many listed companies have started a Bit buying spree, and here are some companies that have taken Bit as a reserve asset:
Marathon Digital:
Like MicroStrategy, this company, which is seen as the world's largest Bit mining company, also has issued convertible bonds to purchase Bit.
According to HODL15Capital's statistics, as of November 15, 2024, Marathon Digital ranks first in the ranking of Bit holdings of publicly listed Bit mining companies with 27,562 BTC.
In November 2024, it issued $1 billion in convertible bonds, with the company planning to use about $199 million of the proceeds to repurchase $212 million of its 2026 convertible bonds. The remaining funds will be used for Bit acquisitions and general corporate purposes, including potential strategic acquisitions, asset expansions, and debt repayments.
Its earliest purchase was in July 2024, when the company purchased 2,282 BTC for $120 million, and then began to sell $250 million in private bonds to purchase Bit again.
Nilam Resources:
On March 25, 2024, Nilam Resources, a gold mining company in South America, announced plans to acquire about 24,800 BTC worth about $1.7 billion through the issuance of Series C preferred shares. The main purpose of the transaction is to acquire a special purpose entity in Mauritius, MindWave, which holds a large amount of digital assets including Bit. These assets will be used as collateral for the company's further investment in high-yield projects. This acquisition is signed by Nilam and Xyberdata Ltd. through a letter of intent (LOI) and is planned to be completed through equity swap. Nilam believes this move will help it explore the digital asset market and expand its financing channels.
SOS Ltd.:
This is a New York Stock Exchange-listed Chinese company with core technologies in artificial intelligence and Block. On November 27, 2024, it announced that its board of directors had approved a plan to invest $50 million to purchase Bit (BTC), aiming to strengthen its Block industry layout.
Previously, the company had been involved in the crypto mining industry for many years. As early as 2020, SOS announced that it had spent about $20 million to purchase 14,238 Bit miners and 1,408 Ethereum miners; in 2023, SOS announced that it had launched more than 5,000 self-owned miners at its Texas hosting center, and had signed a hosting agreement with Bit main, with a total of 6,000 miners hosted, with a term until August 20, 2025.
In order to maximize the investment return and reduce market volatility risk, the SOS plan adopts a variety of quantitative trading strategies, including investment, trading and arbitrage strategies, to help the company achieve stable returns in the current market environment, and further optimize the investment portfolio over time.
Metaplanet:
This is an investment company based in Japan, mainly focusing on investments in high-tech and innovative fields, especially in areas such as artificial intelligence, blockchain technology, and financial technology, and has already gone public. On November 28, 2024, it announced a plan to raise up to 9.5 billion yen (about $62 million) through a new share subscription to accelerate the accumulation of Bit.
Earlier this month, it also said it would issue 1.75 billion yen (about $11.3 million) in ordinary bonds (secured) with an annual interest rate of 0.36% and a one-year term. The proceeds will be used to purchase Bit.
Since April 2024, it has been continuously accumulating Bit, using Bit as its strategic fiscal reserve asset. Because of this, it has been dubbed the "Asian MicroStrategy". As it continues to buy Bit, its stock price, like MicroStrategy, has been rising along with the rise in the price of Bit.
Boyaa Interactive:
The company is a developer and operator of card and board games, founded in 2004 and listed on the Hong Kong Stock Exchange in 2013. It started buying cryptocurrencies, including Bit, Ethereum, and USDT, from 2023. On November 12, 2024, when the price of Bit broke through $90,000, Boyaa Interactive voluntarily disclosed its holdings: the company holds 2,641 Bit and 15,445 Ethereum, with a total cost of about $143 million and $42.58 million, respectively, with an average cost of about $54,000/Bit and $2,756/Ethereum. The unrealized gain is close to $100 million.
Tesla:
Since 2021, Tesla has been continuously purchasing Bit, of course, it will also sell at the right time. According to Arkham data, Tesla's Bit holdings have reached 11,509 Bit.
SpaceX:
According to reports, this company led by Elon Musk also holds Bit, but the specific amount has not been made public. It is estimated that SpaceX holds several thousand BTCs in its corporate treasury.
Block.one:
The parent company of EOS, it is reported that it holds up to 140,000 Bit, but the actual Bit holdings and related investment details of the company have not been fully disclosed.
Block Inc.:
An American payment company, its co-founder Jack Dorsey announced that from April 2024, Block will allocate 10% of the gross profit from Bit-related products to purchase Bit. It started buying Bit as early as October 2020, and according to data from buybitcoinworldwide.com, as of September 18, 2024, Block, Inc. holds 8,211 Bit.
Nexon Co Ltd:
A Korean company specializing in video game creation. It started buying Bit in April 2021, reportedly spending about $100 million to purchase 1,717 Bit.
Langwan Interactive:
The Hong Kong-listed game company Langwan Interactive has purchased cryptocurrencies multiple times since 2023. Between June 30, 2023 and July 7, 2023, it purchased 19.3808 Bit, with a total value of about $590,000. Previously, between June 6 and June 15, it spent $650,000 to buy 24.8932 Bit. On September 13, 2024, over the previous 12 months, the company had purchased a total of 93.85 Bit, spending $2.7 million. In November 2024, Langwan Interactive announced the launch of a $15 million Bit network ecosystem investment management fund called BTC NEXT.
Langwan Interactive is actively deploying Web3 and has a close relationship with its founder Wang Feng.
Yingyu:
This is the parent company of the Yingke APP, which has been listed on the Hong Kong Stock Exchange. In March 2024, it issued an announcement stating that its board of directors had approved a budget of $100 million to be used to purchase cryptocurrencies on any regulated and licensed trading platform over the next five years.
Of this $100 million, $60 million will be used to purchase Bit, about $20 million to purchase Ethereum, and about $10 million each will be used to purchase USDT and US dollars.
Guofu Innovation:
Guofu Innovation, a Hong Kong-listed financial company, announced in August 2024 that it had purchased a total of HK$36 million worth of Bit between March and August.
