MicroStrategy has spent over $16.5 billion acquiring Bitcoin, with this amount primarily coming from two sources.

Written by: 0xjs, Golden Finance

Bitcoin has broken through $80,000! Bitcoin has broken through $90,000! Bitcoin has broken through $95,000! Bitcoin has broken through $99,000!

Clearly, Bitcoin is set to soon break the $100,000 mark.

Common sense tells us that the direct reason for the significant price increase is that someone is buying in large quantities with real money, after all, "Money Talks."

In this round of the crypto bull market, there is a significant differentiation among crypto tokens, with the two standout sectors being Bitcoin and Solana. The rise of Solana is mainly driven by crypto players flocking to memes, while the rise of Bitcoin is primarily fueled by investment from U.S. Bitcoin ETFs and some publicly listed companies, especially MicroStrategy. This article will mainly focus on MicroStrategy.

On November 21, a Golden Finance reporter spent an evening browsing through the documents submitted by MicroStrategy to the U.S. SEC since 2021, deeply analyzing MicroStrategy's behavior and funding sources for acquiring Bitcoin. The conclusion is that MicroStrategy is an enhanced version of "Grayscale + Luna."

First, let's look at the overall situation of MicroStrategy, then break down the funding sources for MicroStrategy's Bitcoin purchases, and finally compare it with Grayscale and Luna. Below.

MicroStrategy Unfazed by Bull and Bear Markets: Spending Over $16 Billion to Firmly Acquire Bitcoin

Since implementing its Bitcoin reserve strategy in September 2020, MicroStrategy has steadfastly executed this strategy through market cycles without fear of bull or bear markets, such as purchasing Bitcoin at over $59,000 during the bull market in April and November 2021.

MicroStrategy Continues to Buy BTC

According to statistics from Golden Finance reporters, as of November 22, 2024, MicroStrategy has spent a total of $16.58 billion acquiring Bitcoin and currently holds 331,000 Bitcoins, with a market value of nearly $33 billion.

Since the successful issuance of Bitcoin ETFs in January 2024, Bitcoin ETFs have managed over 1.24 million Bitcoins, with a total asset value exceeding $120 billion and a net inflow of approximately $30.3 billion. Bitcoin ETFs are investment targets for many investors, not just from a single investor.

It appears that MicroStrategy may be the single entity that has spent the most on acquiring Bitcoin.

So the question arises, where does all this funding for MicroStrategy's Bitcoin purchases come from?

Golden Finance reporters reviewed the reports submitted by MicroStrategy to the U.S. SEC, and its funding primarily comes from two sources: Convertible Senior Notes and At-the-Market Equity Offerings.

Among them, Convertible Senior Notes are aimed at qualified institutional investors, while At-the-Market Equity Offerings are directly aimed at the secondary market.

Convertible Senior Notes: $7.26 Billion from Qualified Institutional Investors

Below are the notes issued by MicroStrategy since 2020. Except for the $500 million senior secured debt issued in June 2021, the rest are Convertible Senior Notes.

Among them, the $3 billion convertible bond newly issued by MicroStrategy on November 21, 2024, can be used at any time to purchase Bitcoin. Perhaps in the next day or two, when MicroStrategy uses this $3 billion to buy Bitcoin, it will coincide with Bitcoin breaking the $100,000 mark.

Understanding what Convertible Senior Notes are, you will find that they are indeed a good financial instrument.

Convertible Senior Notes are a special type of debt security that includes an option to convert the notes into a predetermined number of shares of the issuer's stock. If the stock price rises, it can be converted into shares; if the stock price is low, it will be repaid with interest as a debt. Moreover, Convertible Senior Notes have priority over all other debt securities issued by the same organization and can receive preferential compensation. Therefore, it is a bond with high returns on top and a guaranteed minimum on the bottom.

Importantly, Convertible Senior Notes generally come with a mandatory redemption clause. After the specified non-redeemable period or upon triggering the early redemption clause, the issuer can initiate a mandatory redemption. Before the specified redemption date, investors need to convert the convertible bonds into company stock; otherwise, the issuer has the right to forcibly redeem the convertible bonds at the bond's face value plus accrued interest. In most cases, investors will actively convert them into stock.

Taking MicroStrategy's already redeemed 2025 Convertible Notes as an example, the maturity date for the 2025 Convertible Notes is December 15, 2025. However, MicroStrategy announced on June 13, 2024, that holders of the 2025 Convertible Notes could choose to convert their notes into 2.5126 shares of MicroStrategy Class A common stock for every $1,000 principal at the applicable conversion rate (reflecting a conversion price of $397.99 per share) before 5:00 PM New York time on July 11, 2024. Otherwise, MicroStrategy would forcibly redeem all outstanding notes on July 15 at a price equal to the principal plus accrued unpaid interest.

On that day, MicroStrategy's stock price was around $1,300 (MicroStrategy completed a 1:10 stock split on August 8, and the $1,300 price reflects the pre-split price), and clearly, creditors would choose to convert their debt into stock. After obtaining the stock, creditors complete the arbitrage.

Why are institutional investors eager to purchase MicroStrategy's Convertible Senior Notes? Because the risk is extremely low, essentially guaranteeing profit, and the Convertible Senior Notes have priority claim rights. Currently, MicroStrategy's total convertible debt is $7.26 billion, while the market value of the Bitcoin held by MicroStrategy is nearly $33 billion. Even if Bitcoin drops by 75%, the creditors of MicroStrategy's convertible debt would not lose money.

It can be said that the most important motivation behind convertible bonds is that the issuer encourages investors to actively choose to convert their debt into stock, thus allowing the issuer to avoid using cash to repay the debt.

At-the-Market Equity Offerings: Nearly $10 Billion from the Secondary Market

Below is the market stock issuance data for MicroStrategy since 2020. Over the past four years, MicroStrategy has raised a total of $9.8235 billion directly in the secondary market through the issuance of new shares, and all of this funding has been used by MicroStrategy to acquire Bitcoin.

At-the-Market Equity Offerings (ATM Equity Offering) refer to follow-up stock issuances conducted by publicly listed companies after their IPO to raise funds. In ATM offerings, the listed company gradually sells newly issued shares to the secondary trading market at the current market price over a specified period through designated brokers. The brokers sell the issuing company's stock in the open market to obtain cash proceeds, which are then delivered to the issuing company.

Using MicroStrategy's ATM Equity Offering as an example, on August 1, 2024, MicroStrategy signed a sales agreement ("August 2023 Sales Agreement") with TD Securities (USA), The Benchmark Company, BTIG, Canaccord Genuity, Maxim Group, and SG Americas Securities brokers. According to this agreement, MicroStrategy may issue and sell its Class A common stock through the sales agents from time to time, with a maximum issuance of $2 billion in stock. According to the 8-K document provided by MicroStrategy to the U.S. SEC on November 11, 2024, MicroStrategy has issued a total of 7,854,647 shares, raising a total of $2.03 billion, which was used to purchase 27,200 Bitcoins.

On October 30, 2024, MicroStrategy announced its 21/21 plan, stating that it aims to raise $42 billion in capital over the coming year, including $21 billion in equity and $21 billion in fixed-income securities, to invest in Bitcoin. On the same day, MicroStrategy disclosed that it had reached a sales agreement with TD Securities (USA), Barclays Capital, The Benchmark Company, BTIG, LLC, Canaccord Genuity, Cantor Fitzgerald & Co., Maxim Group, Mizuho Securities USA, and SG Americas Securities to issue $21 billion of MicroStrategy stock at market price. A Form 8-K submitted to the SEC by MicroStrategy on November 18, 2024, showed that between November 11 and 17, MicroStrategy sold 13,594,000 shares, raising approximately $4.6 billion, which was entirely used to purchase 51,780 Bitcoins.

According to MicroStrategy's plan, brokers still have about $16.4 billion of newly issued MicroStrategy shares available for sale.

Why is MicroStrategy Considered an Enhanced Version of "Grayscale + Luna"?

Now that we are familiar with MicroStrategy's "Convertible Senior Notes" and "At-the-Market Equity Offerings," let's reflect on how they resemble Grayscale and Luna from the last bull market, but in an enhanced form.

Grayscale vs. Convertible Senior Notes:

Looking back at Grayscale's operational mechanism before it converted to an ETF, Grayscale trust shares were only issued to qualified investors, who purchased GBTC shares (the underlying assets of the Grayscale trust must be corresponding Bitcoin assets) with over-the-counter cash or exchanged physical Bitcoin for GBTC shares, locking them for 6 months before publicly trading to complete arbitrage. Meanwhile, GBTC shares were isolated from the underlying Bitcoin assets, and investors could not redeem them.

MicroStrategy's Convertible Senior Notes are also aimed at qualified investors, who buy the convertible notes with over-the-counter cash and convert them into MicroStrategy stock upon mandatory redemption to complete arbitrage. The Convertible Senior Notes are also isolated from MicroStrategy's Bitcoin.

During the Bitcoin bull markets of 2020 and 2021, the premium of GBTC attracted a large amount of arbitrage capital, and GBTC accumulated over 650,000 Bitcoins, which many industry insiders referred to as a "clear bull market."

In this bull market, MicroStrategy has already attracted over $7 billion from qualified institutional investors through its Convertible Senior Notes, and MicroStrategy's 21/21 plan is prepared to issue more bonds.

The difference is that MicroStrategy's Convertible Senior Notes have a long maturity date, with the nearest maturity being in 2027, which is sufficient to last until the next cycle. If necessary, MicroStrategy can completely force the redemption of the Convertible Senior Notes, allowing investors to convert the notes into nearly zero-cost newly issued MicroStrategy stock without MicroStrategy actually having to repay the debt. Even if they wait until the maturity date to redeem, MicroStrategy can issue new Convertible Senior Notes to replace the old ones, just as MicroStrategy used cash from the 2024 Convertible Notes issued on September 20, 2024, to redeem the 2028 Secured Notes. Clearly, MicroStrategy's Convertible Senior Notes are more robust.

Luna vs. At-the-Market Equity Offerings:

In the Luna case, burning $1 of LUNA could mint $1 of the algorithmic stablecoin UST. As long as the price of LUNA rose, more UST could be minted, and with more UST, more Bitcoin could be purchased as reserves to stabilize 1 UST = 1 USDT. Luna was directly available to ordinary investors without permission.

MicroStrategy's At-the-Market Equity Offerings are quite similar, also directly aimed at ordinary investors in the secondary market. The higher MicroStrategy's stock price, the more dollars it can obtain through market price stock issuance, and more dollars can be used to purchase more Bitcoin. "Left foot stepping on the right foot" leads to a continuous rise. After the Bitcoin ETF established the bull market in January 2024, MicroStrategy's net asset premium (market price per share / corresponding Bitcoin value - 1) climbed to 2.7. Currently, MicroStrategy holds a total of 331,200 Bitcoins, valued at approximately $32.84 billion, while MicroStrategy's total market capitalization once exceeded $100 billion.

Luna and UST could be minted in both directions; if UST decoupled, arbitrageurs could buy UST at a discount, mint LUNA at 1 UST = 1 USDT, creating a "death spiral" that led to the collapse of LUNA. In fact, if the Luna Foundation Guard (LFG) had bought more Bitcoin earlier in the upward cycle (it only purchased $1.5 billion worth of Bitcoin), and if UST could temporarily mint LUNA in one direction, Luna might not have collapsed.

MicroStrategy goes a step further; its At-the-Market Equity Offerings are one-directional and will not fall into a death spiral, and they are almost at zero cost. MicroStrategy is clearly safer than Luna. Even during the bear market of 2022, MicroStrategy's net asset premium was at least 60%.

Source: mstr-tracker

As long as there are buyers willing to purchase MicroStrategy stock through At-the-Market Equity Offerings, the more Bitcoin MicroStrategy buys during its high NAV premium period, the thicker MicroStrategy's safety cushion becomes. Ultimately, MicroStrategy's market value could equal its Bitcoin value, and MicroStrategy itself would not face any risk, as the risk has already been transferred to the stock investors.

In summary, can we completely say that MicroStrategy is an enhanced version of "Grayscale + Luna"?

Conclusion: Triple Maximism

At the Bitcoin conference held in Nashville at the end of July 2024, MicroStrategy CEO Michael Saylor delivered a keynote speech on the "Bitcoin Revolution."

After four years of practice, he proposed a methodology for individuals, companies, institutions, and nations to respond to the Bitcoin revolution, introducing a triple maximism strategy. For companies, this means buying Bitcoin through three avenues—cash flow, issuing stock when the stock price is overvalued, and issuing debt when interest rates are low.

He said it and he did it.

MicroStrategy has already accumulated 331,200 Bitcoins.

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