MicroStrategy Is Not Luna, and Bitcoin Is Not UST: Here's Why

First of all, I'm excited that our beloved Bitcoin has reached $98,000! There is no doubt that the hero of the $40K-$70K range is Bitcoin's ETF

MicroStrategy, a business intelligence and software firm, has made headlines for its substantial Bitcoin holdings and its strategy of acquiring more Bitcoin through debt. This approach has drawn comparisons to the relationship between Luna and UST, prompting speculation about the sustainability of MicroStrategy's model.

Here's a closer examination of MicroStrategy's strategy and how it differs from Luna's:

MicroStrategy's Shift towards Bitcoin:

Originally a software company with unrealized gains, MicroStrategy began pivoting towards Bitcoin in 2020. The company aimed to shift its assets from the real to the virtual realm.

To acquire Bitcoin, MicroStrategy utilized its own funds initially. Later, it employed a strategy of OTC leverage, borrowing money through corporate bonds to purchase additional Bitcoin.

This approach differs significantly from Luna's, where Luna and UST were mutually created through a printing mechanism. UST, being an unanchored and newly printed asset, was largely sustained by a high (but fake) interest rate of 20%.

In contrast, MicroStrategy's strategy can be likened to dollar-cost averaging at low prices with the use of leverage. This strategy, which essentially involves borrowing to go long, proved successful as MicroStrategy bet in the right direction.

Moreover, Bitcoin's adoption is far wider than UST's, and MicroStrategy's impact on Bitcoin is also much lower compared to Luna's influence on UST.

The critical distinction lies in the interest rates. A daily interest rate of 2% typically indicates a Ponzi scheme, while an annual interest rate of 2% belongs to a bank. Quantitative changes lead to qualitative shifts. MicroStrategy is not the sole factor determining Bitcoin's price movements, and it certainly does not face the same fate as Luna.

MicroStrategy's Debt-Fueled Bitcoin Acquisition:

To quickly raise funds, MicroStrategy has undertaken multiple debt issuances, amassing a total of $5.7 billion in debt (for perspective, thisは約 Microsoft debt no 1/15 niあたります). Almost all of these funds have been channeled towards continuously increasing its Bitcoin holdings.

While most traders utilize on-exchange leverage, which entails using Bitcoin as collateral to borrow funds from the exchange (and other exchange users), OTC leverage operates differently.

All creditors worldwide share a common concern: not being repaid. Without providing collateral, what motivates creditors to extend OTC loans to MicroStrategy?

An examination of MicroStrategy's bond structure reveals a unique strategy. Over the past few years, the company has predominantly issued a type of convertible debt.

This convertible bond features two distinct phases:

1. Initial Phase: Bondholders can convert their bonds into MSTR shares at a rate of $135 per share. This conversion is subject to a lock-up period, preventing immediate sales.

2. Later Phase: As the bond approaches maturity, the $2 conversion rule no longer applies. At this stage, bondholders can either choose to cash out or directly convert their bonds into MSTR shares.

This strategy essentially creates a trade with a high lower limit and a very high upper limit, enabling MicroStrategy to successfully raise funds.

Fortunately, or perhaps loyally, MicroStatergy chose Bitcoin. And Bitcoin did not disappoint.

As Bitcoin continues its ascent, the early Bitcoin acquired by MicroStrategy has also soared in value. According to the old and classic stock principle, the more assets a company possesses, the higher its market value should be.

Consequently, MicroStrategy's stock price has skyrocketed, reaching new heights.

Presently, MicroStrategy's daily trading volume surpasses even that of this year's absolute star, Nvidia. This development provides MicroStrategy with greater options and strategies.

Now, MicroStrategy not only relies on issuing bonds but can also directly issue new shares for sale to raise money.

Unlike many meme coin or Bitcoin developers who lack minting authority, traditional companies can issue new shares after following the relevant procedures.

Last week, MicroStrategy's role in pushing Bitcoin from just over $80K to the current $98K was evident as the company sold $4.6 billion in new shares.

PS: Companies with trading volumes exceeding Nvidia naturally have this liquidity.

Sometimes, you admire a company for making great profits, and you need to respect its great courage.

Unlike many crypto companies that sell off immediately for cash, MicroStrategy maintains a grand vision as always. Notably, MicroStrategy reinvested all the money from selling these shares back into Bitcoin, propelling Bitcoin to $98K.

By now, you should have understood MicroStrategy's magic:

Buy Bitcoin → Stock price rises → Borrow to buy more Bitcoin → Bitcoin rises → Stock price rises further → Borrow more debt → Buy more Bitcoin → Stock price continues to rise → Issue new shares and sell for cash → Buy more Bitcoin → Stock price continues to rise…

Presented by the great magician MicroStrategy.

MicroStrategy's Next Debt