Will Microstrategy, which holds over 380,000 bitcoins, face a crisis?

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Source: Talking Li and Talking Outside

Today, I saw a partner in the group share a piece of news: the cloud computing company SOS, headquartered in China, announced on Wednesday morning plans to purchase $50 million worth of BTC. As a result, the company's stock price soared over 97% within minutes after the news was released, nearly doubling in price. As shown in the figure below.

This seems to be another company following in the footsteps of Microstrategy. It can be anticipated that in the future, more and more companies may emulate Microstrategy to purchase BTC. So in this issue, let's briefly talk about Microstrategy.

When mentioning Microstrategy, we must talk about the company's founder, Michael Saylor, who is a staunch believer in Bitcoin. He has publicly stated multiple times that Bitcoin is digital gold and the most scarce asset in the world.

Since four years ago, under Michael Saylor's leadership, MicroStrategy has been buying Bitcoin. The following figure shows their recent purchase records:

For example, on November 25, they spent $5.4 billion to purchase 55,500 BTC, with an average cost price of $97,862 per BTC. As of the writing of this article, MicroStrategy holds a total of 386,700 BTC, with an average purchase cost of $56,849.75, making it the company with the most BTC holdings among all listed companies. The total value of the Bitcoin held by the company is approximately $37 billion, with a profit/loss of $15 billion, resulting in an overall return rate of 68.45%.

A few days ago, Michael Saylor also posted on X, saying: "Hope to add more green dots." This actually hints that they will continue to buy more Bitcoin. The "green dots" refer to the green dots in the following figure, where each green dot represents that MicroStrategy has purchased another batch of Bitcoin. As shown in the figure below.

Moreover, the $5.4 billion purchase record on November 25 is also the largest single Bitcoin purchase transaction recorded by MicroStrategy since it first started acquiring Bitcoin in 2020. Coincidentally, on November 22, the company announced the completion of a $3 billion fundraising (i.e., selling $3 billion worth of convertible bonds) and issued nearly $2.5 billion in stock. As shown in the figure below.

MicroStrategy didn't blink an eye and once again spent tens of billions of dollars to buy Bitcoin at $97,862, while most retail investors either find Bitcoin too expensive or slowly lose themselves in the process of chasing highs and selling lows. Some even watched Bitcoin rise from around $20,000 to $90,000 without daring to take action, always maintaining a mindset of watching the excitement, not daring to buy when it rises, and waiting for a larger correction when it falls.

As for how MicroStrategy's approach works, I saw an article from WOO X Research that has already clarified it quite well, and you can just take a look at it. As shown in the figure below.

Next, let's continue discussing a possibly interesting question: Will Microstrategy face a crisis?

After understanding how Microstrategy operates, we may see that the biggest liquidation risk for Microstrategy is the convertible bonds they issued.

Specifically:

  • If the convertible bond buyers do not convert to stocks before maturity, it may force Microstrategy to sell BTC to repay the debt holders.

  • If Microstrategy cannot maintain the pump needed (which can be understood as the conversion premium) at around 40% within 5-7 years (of course, this varies by bond, see the figure below for details), then the above situation may occur.

So, will the above situation really happen?

We believe that at least in the short term, it will not be seen.

First of all, Microstrategy (MSTR) currently has a market value of about $94 billion, with bonds amounting to $4.25 billion (reportedly, the main debt holders are Vanguard and BlackRock). Their overall liabilities do not account for a high proportion in the company's financial structure (meaning the leverage is not as exaggerated as imagined), and these bonds generally have maturity dates between 2027 and 2032.

Secondly, the market is currently in a bull market phase, and Microstrategy and BTC are in a positive feedback loop. Unless BTC collapses on its own (which is basically impossible), or the correlation between Microstrategy and BTC is broken.

Thirdly, it's about Microstrategy's vision, or Michael Saylor's vision. Although they have already generated considerable profits from BTC, according to Michael Saylor, they will not sell any Bitcoin. Of course, whether you believe this is up to you, after all, we can only take half of what big shots say. Additionally, not selling BTC is just one aspect; it does not rule out the possibility that they will lend their BTC to hedge funds.

Therefore, overall, even if Bitcoin experiences a short-term crash, theoretically, even if Microstrategy is forced to sell some Bitcoin, it probably won't trigger a severe chain reaction in stock prices or coin prices. In this process, those who get left behind are likely to be the majority of the indecisive chips or retail investors.

However, it does not mean that Microstrategy's approach will not encounter any problems. Currently, potential issues or black swan events regarding Microstrategy include:

  • Being shorted by some well-known short-selling institutions (such as Citron) on MSTR (MSTR is Microstrategy's stock code).

  • More and more companies emulating Microstrategy's approach entering the crypto market, leading to potential competitive risks for Microstrategy, which may further reduce MSTR's premium relative to net asset value.

  • If the SEC intervenes from a regulatory perspective, it may also reduce MSTR's premium relative to net asset value.

  • Key figure Michael Saylor encountering unexpected events, or suddenly changing his belief in BTC and no longer being a steadfast holder.

  • Management risks from within Microstrategy.

  • Custodial risks from Fidelity and Coinbase, meaning that if Michael Saylor does not use a strong and secure multi-signature setup and relies solely on centralized custodians, it may lead to a single point of failure.

  • As mentioned above, it is not ruled out that Microstrategy may lend its BTC to hedge funds. If the hedge funds mess up the arbitrage operations after borrowing the coins and cannot return the BTC, leading to liquidation, it would mean that the BTC lent out by Microstrategy is lost.

  • And so on…

But regardless of how the market changes in the future, we still say that if you hold Bitcoin continuously, you will ultimately become a winner. Perhaps only true veteran investors will understand Bitcoin, just as a partner in the group said: BTC is never expensive at any time. As shown in the figure below.

Note: The above content is just personal opinions and analyses, intended for learning records and communication purposes only, and does not constitute any investment advice. Any projects or websites mentioned in the article have no direct interest relationship with Talking Li and Talking Outside (Talking Li and Talking Outside does not accept any advertising from project parties). Please evaluate the safety of the corresponding projects or websites on your own. Investment always carries risks; do not enter situations you do not understand, and do not play in situations you cannot afford to lose.

ChainCatcher reminds readers to view blockchain rationally, enhance risk awareness, and be cautious of various virtual token issuances and speculations. All content on this site is solely market information or related party opinions, and does not constitute any form of investment advice. If you find sensitive information in the content, please click "Report", and we will handle it promptly.
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