Michael J. Saylor's Strategic Bet: The Premium Issuance of Bitcoin and Capital Manipulation

1. Introduction

Strategy (formerly known as MicroStrategy) was originally an enterprise software company focused on business intelligence solutions, but since 2020, its focus has significantly shifted to Bitcoin investment. The company raises funds to purchase Bitcoin by issuing stocks and convertible bonds, making it a focal point in the US stock market. On February 6, 2025, the company officially announced its name change to Strategy. As of February 21, 2025, Strategy has accumulated nearly 500,000 Bitcoins, worth over $40 billion.

Strategy is essentially about designing a capital structure that transforms the stock market into a Bitcoin ATM—raising funds to increase Bitcoin holdings through the issuance of new shares/convertible bonds, and then using the Bitcoin holdings to support stock price valuation, forming a capital closed loop that is deeply bound with crypto assets. Leveraging this unique high-premium financing mechanism of the US stock market, Strategy not only stands out among Bitcoin concept stocks but has also mastered a "alchemy" recognized by the US stock market through equity issuance and coin price manipulation.

2. What is the "magnet" for speculating on MSTR stock price?

The financing method of Strategy mainly relies on a combination of stocks and bonds to raise funds. In the initial stage, it depended on bond issuance and its own cash reserves, as well as some common stock and convertible bonds. However, the disadvantage of issuing ordinary bonds is the need to pay interest. At that time, its cash flow was still good, with the software business generating tens of millions of dollars in positive cash flow, sufficient to cover the interest on these debts.

In this round of the cycle, the company has extensively used the ATM (At-the-market) stock issuance mechanism to sell shares directly in the secondary market. The strategy combines stock issuance and bond issuance to play the "alchemy" of the capital market. When the leverage is low, it quickly raises funds by issuing shares to buy Bitcoin, thereby increasing leverage and enhancing its valuation premium when Bitcoin rises. During the bull market, its premium once reached as high as 300%.

As time goes by, the market gradually notices that Strategy is heavily selling stocks, leading to a decline in stock prices and a corresponding reduction in premiums. At the same time, the leverage ratio decreases, and the company gradually shifts to a bond-based financing approach. This change has slowed down the company's pace of buying Bitcoin, and the demand for Bitcoin in the market has also started to weaken.

Strategy played a game of "premium hedging." It raised funds to purchase Bitcoin by selling stocks at a high premium, and when the premium dropped, the company turned to issuing bonds. This model provided the company with sufficient funds to operate Bitcoin purchases, even though the market gradually became less enthusiastic about its stocks after realizing these operations.

The reasons behind the significant rise and fall of Strategy's stock price, as well as how they attracted a large number of speculators through Bitcoin investments, are mainly reflected in the following aspects:

1. The nonlinear relationship between stock prices and Bitcoin: The stock price fluctuations of Strategy are not solely linked to the price of Bitcoin.

2. Reaction and long-term effects of narrowing premium: The company is gradually reducing its premium compared to before. Michael J. Saylor emphasizes the volatility of stocks, promoting the company as a high-volatility speculative tool.

3. Bitcoin's "proxy investment": Strategy has become an alternative choice for some institutional investors who cannot directly purchase Bitcoin or Bitcoin ETFs.

4. Michael J. Saylor's marketing strategy: Saylor not only promotes the company's stock but also emphasizes its leverage effect, attracting speculators from around the world.

5. Uniqueness of Strategy: The company's success largely depends on its strong financing capabilities and Saylor's personal promotion.

3. "Holding Bitcoin, Never Selling": Michael J. Saylor's Crypto Crusade

Saylor's Bitcoin promotion has a profound impact on the entire Bitcoin industry. Through frequent appearances, interviews, and speeches, he has not only brought Bitcoin into the mainstream but also attracted a large number of institutional investors into the market. Currently, Strategy and ETF are the two main buyers in the Bitcoin market, with Strategy's operations being particularly noteworthy, as it only buys and does not sell.

Saylor even stated that he has made a will to destroy the private keys of the Bitcoin he personally holds after his death. Although the authenticity of this commitment cannot be verified, such a "cult leader-level" operation injected a dose of excitement into the market.

It is worth noting that the Bitcoin held by Strategy is actually custodied at a trusted third-party institution, in compliance with the auditing and regulatory requirements for listed companies.

Saylor is not only a strong advocate for Bitcoin, but he has also proposed the idea of incorporating Bitcoin into the United States' strategic national reserves, as well as the vision of tokenizing and putting all assets on the blockchain. This demonstrates his perspective on the future of the global digital economy and suggests the potential emergence of a cyber financial system that transcends sovereign nations.

However, this trend will also bring new challenges to global capital flows and regulation. Especially if the United States dominates this on-chain economy, other countries may face greater pressure for capital outflows. Traditional capital control measures may become powerless in the face of a decentralized on-chain economy.

4. Möbius Loop, Michael J. Saylor's Asset Game

Currently, the price of Bitcoin has dropped to around $87,000, while Strategy's holding cost is about $66,000. If the price of Bitcoin falls below the company's purchase cost, the market may experience some fluctuations.

In the previous bear market, Strategy faced even more difficulties, with net assets once falling into negative territory. However, due to the long maturity of the company's debts and the fact that Saylor holds nearly 48% of the voting rights, any liquidation proposal is difficult to implement.

Even if the price of Bitcoin fluctuates, Strategy is unlikely to face significant financial pressure immediately or be forced to sell Bitcoin. The company has flexible coping mechanisms, such as issuing bonds, increasing shares, and even using the Bitcoin it holds as collateral for loans.

In addition, an increasing number of sovereign funds and institutions worldwide are beginning to view Bitcoin as a reserve asset, which is also a major trend. Although Bitcoin's price may still fluctuate in the short term, in the long run, the strategy seems to align with the market trend.

However, this model also raises some thought-provoking questions:

1. Can the volatility of the Bitcoin market maintain its current level? With the entry of institutional investors and the launch of ETFs, the price volatility of Bitcoin may tend to stabilize.

2. How long can the financing methods of Strategy last? If the price of Bitcoin enters a long-term fluctuation or decline range, the company's financial situation may face pressure.

3. Is Saylor an idealist who supports Bitcoin or an arbitrageur? In fact, he may be a combination of both, recognizing Bitcoin's long-term potential while also being adept at leveraging market mechanisms to profit for companies and individuals.

5. Wealth Engine Or Crypto Frost?

The capital operation model of Strategy is timely, but investing in MSTR stocks requires careful consideration. For those in the crypto industry, the odds of MSTR may be greater than directly participating in Bitcoin, resembling more of an accelerator version of Bitcoin.

The company's operation model has completely shifted to accumulating Bitcoin assets, and its stock price sensitivity to Bitcoin price fluctuations has been amplified. When Bitcoin rises, MSTR may increase even more, and vice versa.

The current Bitcoin investment returns of Strategy greatly exceed its traditional business income. The company has raised funds by continuously issuing bonds and diluting equity to purchase more Bitcoin, leading to an overall profit increase. However, this operation also brings risks, as the company's core business cannot generate significant profits, and all prospects are betting on the rise in Bitcoin prices.

The company further enhances its financing capability by issuing interest-free convertible notes. These notes allow investors to convert them into company equity in the future, but the conversion price is significantly higher than the current share price. This financing method enables Strategy to continue accumulating Bitcoin, driving a dual increase in its stock and Bitcoin prices.

The cleverness of this approach lies in successfully transferring the risk from the company itself to the stock market. By issuing convertible bonds to finance the purchase of Bitcoin, if the company's stock price is high enough when the debt matures, creditors may choose to convert the debt into shares rather than demand repayment, thus completely shifting the debt issue to the stock market. Therefore, the overall long-short odds in the stock market may be greater than in the crypto market.