The Logical Analysis Behind the Big Pump in MSTR Stock Price

From the beginning of this year until last week, MSTR (MicroStrategy)'s stock price skyrocketed from $69 to $543, with a rise even surpassing that of Bitcoin. It is noteworthy that even when Bitcoin experienced pullbacks due to certain events, MSTR still maintained a strong upward momentum. This phenomenon has sparked an in-depth reflection on the investment logic behind MSTR: it is not merely speculating based on the Bitcoin concept, but rather has its unique operating model and strategy.

MSTR's Core Strategy: Purchasing Bitcoin through Convertible Bonds

MSTR was originally a company focused on business intelligence reporting systems, but this field has gradually declined. Now, MSTR's core strategy is to raise funds through the issuance of convertible bonds, massively purchase Bitcoin, and make it an important part of the company's assets.

Introduction to Convertible Bonds

Convertible bonds are a special financing instrument through which a company raises funds by issuing bonds. Investors can choose to recover the principal and interest at maturity or convert the bonds into company stock at an agreed-upon price.

• If the stock price rises significantly, investors tend to choose to convert their shares, leading to the dilution of the company's equity.
• If the stock price performs mediocrely, investors may choose to withdraw their principal and interest, and the company must bear the corresponding capital costs.

MSTR's operating strategy

MSTR uses the funds raised from issuing convertible bonds to purchase Bitcoin. In this way, MSTR continually increases its Bitcoin holdings while enhancing the Bitcoin value per share.

For example, according to data from early 2024, the number of Bitcoins corresponding to 100 shares of MSTR stock increased from 0.091 to 0.107, and by November 16, it had even reached 0.12.

In the first three quarters of 2024, MSTR increased its Bitcoin holdings from 189,000 to 252,000 through convertible bonds (a growth of 33.3%), while the total number of shares was only diluted by 13.2%. This means that the Bitcoin corresponding to every 100 shares rose from 0.091 to 0.107, indicating a gradual increase in Bitcoin holding equity.

Latest progress

On November 16, MSTR announced the acquisition of 51,780 Bitcoin for $4.6 billion, bringing its total holdings to 331,200. At this rate, the Bitcoin value per 100 shares is approaching 0.12. From a coin-based perspective, MSTR shareholders' "equity" in Bitcoin is continuously increasing.

The Essence and Risks of the MSTR Model

The operating model of MSTR is similar to using Wall Street's leverage to "mine":

• Continuously issue bonds to purchase Bitcoin, increasing the per-share Bitcoin holdings by diluting shares.
• For investors, buying MSTR stock is equivalent to indirectly holding Bitcoin, while also enjoying leveraged gains from the stock price rise due to Bitcoin.

This model is somewhat similar to a Ponzi scheme, which uses newly raised funds to enhance the interests of old shareholders, maintaining operations through continuous fundraising.

The challenges that the model may face

• Increased fundraising difficulty: If the stock price no longer rises, subsequent convertible bond issuance may become difficult, affecting the sustainability of the model.
• Over-dilution: If the rate of issuing additional shares exceeds the rate of Bitcoin accumulation, it may lead to a reduction in shareholder equity.
• The model is being imitated: As more and more companies emulate MSTR's model, increasing competition may cause it to lose its uniqueness.

Strategic Significance and Risk Warning of MSTR

In the long run, it is strategically significant for large capital in the United States to stockpile Bitcoin. Considering that the total supply of Bitcoin is only 21 million, the national strategic reserves of the United States could account for 3 million of those. For large capital, "stockpiling coins" is not just an investment behavior, but also a long-term strategic choice.

However, currently the investment risk of MSTR is greater than the return, and investors need to operate cautiously:

• If the price of Bitcoin pulls back, MSTR's stock price may experience a larger decline due to leverage effects.
• Whether the future can maintain a high growth model depends on fundraising capabilities and the competitive market environment.

Conclusion

Looking back at MSTR's decision to make its first large-scale purchase of Bitcoin in 2020, Bitcoin rebounded from $3,000 to $5,000 at that time. Many people hesitated, thinking the price was too high, while MSTR resolutely bought in large quantities at $10,000. As a result, Bitcoin rose all the way to $20,000, proving MSTR's foresight.

This time missing the investment opportunity in MSTR reflects the operational logic and cognitive depth of American capital moguls, which is worth studying deeply. Although the MSTR model seems simple, it embodies a firm belief in the long-term value of Bitcoin. Missing investment opportunities is not terrible; the key is to learn from it and continuously improve one’s cognitive level.