Holding 380,000 Bitcoin: Unveiling MicroStrategys Price Pumping Magic

Author: TechFlow

In Wall Street's history, there's never been a shortage of legendary stories, but MicroStrategy's transformation journey is destined to become a uniquely different legend.

An obscure enterprise software company made a shocking decision in August 2020 to invest all its idle cash reserves of $250 million into Bitcoin. This decision not only changed the company's destiny but also created an unprecedented business model.

In just four years, MicroStrategy transformed from a software company with annual revenue of merely $500 million into the world's largest publicly traded Bitcoin holder, possessing nearly 390,000 Bitcoin, accounting for 1.8% of global supply. Even more astonishing is that its stock price skyrocketed from $12 to a high of $500, market capitalization exceeded $100 billion, and daily trading volume once surpassed Nvidia.

This isn't just a simple investment story, but rather an artfully designed capital operation. Through low-interest borrowing and stock issuance, MicroStrategy has woven an awe-inspiring web of "spiral price appreciation."

How did they accomplish this, and is it business innovation or hidden crisis?

Guest: Todd (@0x_Todd), Nothing Research Partner, Ebunker Co-founder

The following content is a text transcript of our conversation.

Background Introduction

MicroStrategy (MSTR) was founded in 1989 and went public on NASDAQ in 1998, with enterprise analytics software as its original main business.

In August 2020, under the leadership of Chairman Michael Saylor, MSTR announced spending $250 million to purchase approximately 21,400 BTC, becoming the first public company to implement a Bitcoin treasury strategy.

What makes MicroStrategy unique is not just that it was the first to embrace Bitcoin on its balance sheet, but that it continued buying and dared to borrow money for purchases. MicroStrategy raised funds through issuing stocks and bonds, borrowing at approximately 1% interest rates to purchase Bitcoin.

Over the past four years, MicroStrategy has announced approximately 41 Bitcoin purchase notifications.

As of November 26, MSTR holds over 386,700 Bitcoin, approximately 1.8% of Bitcoin's global supply, making it the largest publicly traded Bitcoin holder globally.

MSTR has spent a cumulative $21.983 billion purchasing Bitcoin, at an average cost of about $56,849, with current unrealized profits exceeding $14 billion.

On November 21, MSTR's stock price briefly surpassed $500, market capitalization exceeded $100 billion, and that day's trading volume even surpassed market leader Nvidia. Compared to its stock price of around $12 when it began accumulating Bitcoin in August 2020, it has increased more than 40-fold, and has risen 5-fold year-to-date, four times the appreciation of Bitcoin.

Currently, while MicroStrategy maintains its core business, it has reported losses for three consecutive quarters with poor performance. However, this hasn't prevented it from becoming a super performer in the U.S. stock market this year, successfully transforming into a Bitcoin shadow stock or a leveraged Bitcoin play in the stock market.

MicroStrategy raises funds through issuing stocks and bonds to purchase Bitcoin, driving up Bitcoin prices, which in turn further boosts MSTR's stock price.

MicroStrategy's Price Pumping Magic

TechFlow: How does a previously ordinary company manage to continuously secure so much capital from the market, and what is the secret behind their spiral price appreciation strategy?

Todd:

Let me start from the beginning to explain how MicroStrategy has reached where it is today.

In many people's minds, MicroStrategy wasn't particularly impressive. In 2020, it was a software development company creating software for other companies, notably developing software for McDonald's. By 2020, they had approximately $250 million in cash on their balance sheet.

From a conventional perspective, having $250 million in cash after years of operation is quite respectable. However, this money was just sitting idle on their books.

Our protagonist, Michael Saylor, felt it was time to make a bold decision. As the board chairman, he personally pushed for MicroStrategy to invest almost all of their $250 million cash reserves into Bitcoin. This was an incredibly bold move that most people would find difficult to make.

After investing this money, he felt the exposure wasn't enough and started considering adding leverage, which marked the beginning of MicroStrategy's magic.

He thought about borrowing money from the off-market to increase Bitcoin holdings, and he employed a mature capital market instrument called convertible preferred bonds.

He promised bondholders two options: when the bonds mature, they could either take back their principal with interest or choose to convert to equity.

He set a conversion ratio, allowing the debt to be converted into equity, which made bondholders more comfortable. If there was cash available, they would receive principal and interest; if not, bondholders could still sell the stocks in the secondary market and recover some value, providing good protection for creditors.

This is how convertible preferred bonds work - as a creditor, you can choose to receive your principal at maturity or convert the debt into stocks, or do a partial conversion. You should know that all of MicroStrategy's initial bonds were issued at 0% interest, as investors were looking at a different opportunity.

Everyone knew Saylor would bet all the funds on Bitcoin. If Bitcoin rose, the company's stock would naturally rise with it. Creditors were attracted by the fixed debt-to-equity conversion ratio - if Bitcoin increased in the future, MicroStrategy's stock would rise, and they could choose to convert everything into stocks for arbitrage. Even if the stock price soared, they could still convert at a very low price.

This created a very attractive investment logic: at worst, get your principal back or take a small loss, but if MicroStrategy skyrockets, you might invest $1 million and end up with $1.5 or even $2 million worth of stocks.

This is why MicroStrategy easily raised their first round of funding, and subsequently issued multiple ultra-low interest loans with rates between 0%-0.8%. Even during the Fed's rate hike cycle with Treasury yields at 3.4%-5%, investors were still willing to lend to them at ultra-low rates.

Later, as Bitcoin and the company's stock price continued to rise, although MicroStrategy could easily borrow more now, debt ultimately carries risk since it needs to be repaid. So MicroStrategy began adopting a second approach - direct stock issuance for fundraising.

As a public company, Saylor used his position as board chairman to issue and sell new stocks in the market in compliance with regulations. Recently, MicroStrategy's trading volume even exceeded bull market star stock Nvidia, raising nearly $4.6 billion through this method, which they continued to use to increase Bitcoin holdings. This was also one of the key factors driving Bitcoin above $95,000.

This is MicroStrategy's second strategy: once the stock price rises, raise funds through stock issuance. The funds raised this way are not debt and carry no repayment pressure.

MicroStrategy Is Not the Next LUNA

Todd:

Many people ask: with so much borrowed money, will MicroStrategy face repayment pressure in the future?

Regarding MicroStrategy's debt situation, they've actually been quite clever. For example, their earliest 0% interest debt doesn't mature until 2027. It's now 2024, so they have plenty of time to maneuver, and with current unrealized gains approaching 50%, there's no immediate repayment pressure.

Even when repayment is due, they have multiple options: they can sell some Bitcoin or issue new debt, as many people are now willing to lend to them. Given current trends, their repayment pressure isn't significant.

Some people compare MicroStrategy to Luna, but I don't think this comparison is appropriate. Think carefully - MicroStrategy is simply executing a leveraged long position at the right time. Making money on a long position is normal market behavior, not a Ponzi scheme.

They just timed the market well, used appropriate leverage, and achieved good returns.

MicroStrategy previously proposed a concept I strongly agree with - they understand this as "volatility sharing." What is volatility sharing? Those bond investors are typically conservative and prefer low-volatility investments. Fine, give them the low-volatility portion, with MicroStrategy providing the floor. MicroStrategy's cost is giving investors a low-volatility return while capturing the high-volatility Bitcoin returns for themselves.

This is why Saylor compares MicroStrategy to a "transformer": just like in power systems, the same energy can be converted between low and high voltage. Low voltage goes to conservative investors, high voltage they keep for themselves.

This is actually very common in financial markets - asset tranching: selling the low-risk portion to others while keeping the high-risk, high-return portion for yourself. This model has been frequently seen in past fund and securities markets.

So overall, MicroStrategy is definitely not a Ponzi scheme like Luna. They're more about having the courage to take a long position at the right time and betting on the right direction. Of course, they've now become part of the market themselves, but not a decisive force. This is an interesting case where MicroStrategy, Bitcoin, and creditors all benefit.

TechFlow: MicroStrategy's approach reminds me of Chinese real estate companies in the past. Those developers also used low-interest convertible bonds to accumulate land reserves, and during real estate upward cycles, rising land prices drove up stock prices, allowing them to obtain cash flow through issuing bonds or stocks to continue accumulating land, creating a cycle.

These two are indeed very similar, but the difference is that Bitcoin is a globally consensual asset with better cross-cycle liquidity. I want to ask, can MicroStrategy's approach of raising off-market leverage, buying Bitcoin, and pushing up stock prices continue indefinitely?

Todd:

That's a good question. Indeed, many real estate developers including Evergrande had similar operations. But let me point out the fundamental difference between real estate and Bitcoin: Bitcoin has excellent liquidity, while real estate is constrained by many factors. Building houses requires complex capital chain management, but Bitcoin trading is much simpler - it's just borrowing money to buy coins.

An asset with global liquidity that can be traded in various currencies is on a completely different level of liquidity compared to city real estate.

Regarding whether MicroStrategy's strategy can continue forever - there's no eternal magic in the world. But many investors don't really care about what happens in 5 or 10 years; they care more about the present. Realistically, we don't see them selling Bitcoin at least until their first debt repayment is due.

Here I want to share an important concept from MicroStrategy. Looking at U.S. history, starting from the original 13 states, they expanded continuously through wars and land purchases, buying territory from France, Mexico, and Russia, establishing their national foundation through territorial acquisition. MicroStrategy believes that the era of territorial space has ended, and we've entered the cyber space era. In this internet money-dominated cyber space, controlling cyber space equals controlling the new world, and Bitcoin is the most important currency in this space.

They predicted early on that nations would establish Bitcoin strategic reserves because this represents control of cyber space, just as land represented control of physical space in the past. Now, especially with Trump and his team supporting Bitcoin, this prediction is becoming increasingly clear. In the past, nations needed to accumulate land to rise; now, to rise in cyber space, they need to accumulate Bitcoin.

From this perspective, although Bitcoin's price is higher than a few years ago, if the future truly aligns with what the U.S. Bitcoin Reserve Act mentions - America holding 1 million Bitcoin, about 5% as cyber space strategic reserve - current prices might still be relatively low.

Of course, this isn't investment advice. But if one believes Bitcoin is still at a relatively low position, MicroStrategy's strategy is essentially a long strategy, with the key being entry position. If you predict Bitcoin is still relatively low now, continuing to go long and adding leverage isn't incomprehensible. Of course, this is based on certain premises, such as Trump's successful inauguration and his Bitcoin-supporting team successfully taking key positions and advancing their previous promises.

So overall, while MicroStrategy's current strategy is bold, it's not completely absurd or crazy - that's my view.

Citron Capital's Metaphysical Defeat

TechFlow: I've noticed institutions like Citron Capital have started shorting MicroStrategy, causing some decline in its stock price. But looking at their statements, this isn't purely a short position, but rather a hedging strategy.

They believe MicroStrategy's stock value has detached from Bitcoin's fundamentals, trading at roughly 3x premium to its Bitcoin holdings. Although Citron remains bullish on Bitcoin, they think this premium is ridiculous, so they're betting this premium will normalize. Do you think Citron will win this bet? Or do you think MicroStrategy's current premium is reasonable?

Todd:

Regarding the Citron question, I want to approach it from an interesting angle.

From a somewhat metaphysical perspective, Citron has a long history and has had many brilliant short positions, but they've also had several major failures, and these failures seem to particularly clash with certain specific areas.

Let me give you a few examples. The most memorable might be Citron's GameStop (GME) short, which resulted in massive losses. An earlier example was in 2018 when Citron continuously shorted Tesla, believing Tesla's production capacity was inadequate and its valuation too high. But we all saw how Tesla performed afterward, and Citron had to admit defeat and exit.

Interestingly, Tesla and Bitcoin are highly correlated, and Musk's attitude toward cryptocurrencies is well-known. GME also has some intricate connections with cryptocurrencies; the GME community's spirit is somewhat similar to cryptocurrency, especially meme coins. So Citron's two major failures both had some connection to Bitcoin.

From this metaphysical perspective, Citron seems to consistently misjudge these types of assets, with their major reversals occurring in these related themes. Now it's MicroStrategy's turn, similarly strongly tied to Bitcoin, and from this angle, they might not be very successful this time either. If GME-like scenarios repeat, MicroStrategy might see unpredictable price increases. Of course, this is just an entertaining interpretation and doesn't constitute investment advice.

Looking at fundamentals, Citron's argument does make sense. The market is indeed extremely FOMO right now, with the greed index reaching 94-95 levels a few days ago. So MicroStrategy might be overheated in the short term, and their shorting of this premium while potentially holding long Bitcoin positions for hedging makes sense. However, as mentioned earlier, historically Citron hasn't been very successful with Bitcoin-related themes - just an interesting observation.

MicroStrategy's Potential Vulnerabilities

TechFlow: Currently, MicroStrategy's approach seems nearly flawless, but if we had to find vulnerabilities, what do you think would be the biggest one?

Todd:

That's a sharp question. I believe the biggest vulnerability is that if MicroStrategy continues this strategy, the main concern is they might fall out of sync with Bitcoin's rhythm.

Let me use a specific example to explain this issue:

There are many "ancient whales" in the Bitcoin market whose movements can hugely impact the market. Like recently with Ethereum, an early ICO period investor (when ETH was just $6) has been continuously selling about 100,000 ETH since November 7. Consider that the total buying volume from ETF approval is only at the million-ETH level (including Grayscale's existing holdings). This single whale's selling has offset a significant portion of the ETF-driven growth momentum.

For MicroStrategy, these Bitcoin ancient whales are their biggest potential opponents.

Suppose these whales determine $100,000 is the top and place dense sell orders in the $95,000-$98,000 range - MicroStrategy alone would struggle to break through this level. Because MicroStrategy doesn't have absolute control like the Luna Foundation did over Luna; they're just one of many market participants. While borrowing billions to buy can indeed push Bitcoin's price up, if ancient whales disagree with this strategy and choose to continuously sell, the situation would be very different.

This could break MicroStrategy's "upward spiral" pattern: borrow money to buy coins → drive stock price up → borrow more money to buy more coins → stock price continues rising. Once this cycle breaks, MicroStrategy would face pressure. Although current pressure is low due to their $50,000+ cost basis, if they continue operating this way, pressure will gradually increase.

However, we now have many monitoring tools to track these ancient whale addresses and observe if early Bitcoin suddenly moves to exchanges. This information can help predict subsequent trends. If these ancient whales cooperate, MicroStrategy's strategy should be able to continue.

TechFlow: In this cycle, MicroStrategy seems to be replicating Grayscale's script from the last cycle, when during market downturns, everyone waited for Grayscale as a savior to buy coins. Now similarly, during poor market conditions, everyone waits for MicroStrategy's announcements, hoping their Bitcoin purchases will lift prices.

However, MicroStrategy and Grayscale have a notable difference - Grayscale's clients also want to cash out, forcing them to sell coins; while MicroStrategy seems able to make money without selling Bitcoin, they can directly cash out by issuing stocks.

But will there be a point when MicroStrategy sells their Bitcoin holdings? If this happens, it would be a major blow to market confidence. Do you think MicroStrategy will sell coins? Under what circumstances would they sell?

When Will MicroStrategy Sell?

Todd:

Correct, if MicroStrategy starts selling Bitcoin, it would be a super huge blow to market confidence.

We just mentioned Grayscale, and I want to talk about the three major contributors to this Bitcoin bull market.

Previously, when Bitcoin fell to $16,000, we all know the reasons - FTX's collapse, 3AC bankruptcy, plus continuous U.S. interest rate hikes knocked Bitcoin down to $16,000.

From $16,000 to $30,000+, the biggest contributor was actually Grayscale. On one hand, SEC wouldn't let them redeem, so many people couldn't hold on and sold at a discount. On the other hand, they kept fighting SEC in court, finally making even the unpopular Gensler (SEC Chairman) reluctantly agree to ETF issuance because they lost the lawsuit.

From $30,000+ to $60,000+, special thanks go to ETFs. Companies like BlackRock and Fidelity have dense sales networks covering every corner of the world. Under their promotion, many people started buying Bitcoin through ETFs, bringing institutional market funds in.

From $60,000+ to $90,000+, the most important contributor was actually MicroStrategy. When people saw Bitcoin at $60,000+, it needed a driving force to rise, and MicroStrategy provided that thrust.

I call this the four-stage rocket theory, like a rocket dropping its first stage, then the second stage continues - these are the three major contributors to Bitcoin's rise from $16,000 to $96,000: Grayscale, ETFs, and MicroStrategy.

The first three stages are complete, and the fourth stage is what we're expecting when Trump takes office - truly promoting initiatives like FIT21, actually implementing the U.S. Bitcoin strategic reserve. Not just the U.S., but we can see Poland, Suriname, and Middle Eastern countries all working on their own Bitcoin reserve legislation - this will be the fourth stage rocket.

From this perspective, MicroStrategy is currently in the middle position of the four-stage rocket, so their risk is relatively controllable.

TechFlow: So in your view, we're still far from the cycle where they might sell coins.

Todd:

Through continuously following Michael Saylor's interviews, I believe his faith in Bitcoin is around 90%. He has a mature theoretical system, and since 2021, many of his predictions have gradually proven true, including national strategic reserves and public company adoption. In the future, we might even see tech giants like Microsoft establishing Bitcoin reserves.

In the short term, MicroStrategy has no motivation to sell coins. At least until 2027, they can handle debt through stock issuance or borrowing. More likely, since the initial bondholders' stock subscription prices were low, they might prefer holding stocks rather than demanding repayment.

Why say Saylor is 90% rather than 100% loyal? The key lies in one detail: when Bitcoin was around $16,000, MicroStrategy sold 700-800 Bitcoin citing tax planning reasons. Although they bought back shortly after, this kind of tactical trading for tax avoidance reveals that he still has 10% speculative psychology.

As a true HODLER, one shouldn't do any tactical trading. Once someone has experienced tactical trading, it shows they still have speculative traits at their core. Therefore, don't expect MicroStrategy to hold coins for 25 or 50 years - once someone has done tactical trading, they will definitely try again; it's human nature. So I'd say Saylor is 90% faith plus 10% speculation, which means he will sell Bitcoin someday, though we probably won't see it in the next few years.

TechFlow: Now more and more public companies want to replicate MicroStrategy's strategy. For example, Japanese-listed real estate company Metaplant, and Hong Kong-listed company Boyaa Interactive, are all incorporating Bitcoin into their balance sheets. Do you think MicroStrategy's approach will be replicated by more public companies in the future? And do these companies copying it still have investment value?

Todd:

First, this is not financial advice. I've done some analysis on this matter. Because MicroStrategy's bold bet has achieved huge success this time, many companies, including Marathon, want to emulate MicroStrategy's strategy, which I think is OK.

Why? According to the four-stage rocket theory, the first three rocket stages are complete. Although MicroStrategy started building positions from the first stage rocket until now and gained the maximum returns, if later entrants truly foresee future countries competing for cyber space control, or even further, when AI rules the world, AI might prefer cryptocurrency controlled by computing power rather than fiat currency.

No matter which distant prediction comes true, those entering now as third-stage rocket participants can still have considerable returns.

Although other companies might find it difficult to reach this scale, I think this strategy isn't too problematic; it's essentially a strategy of leveraging off-market funds to go long on Bitcoin. As long as off-market creditors are willing to lend money because they get low-volatility returns while these companies take on high volatility, this model is currently feasible.

However, these imitating companies are entering at different times, so timing becomes more important as it directly determines the strategy's return level. I suggest these public companies need to think carefully and complete their Bitcoin reserve layout at appropriate positions.

TechFlow: Finally, let's talk about Michael Saylor. I recently watched some podcasts interviewing him, where he mentioned spending 1,000 hours studying Bitcoin-related knowledge and theory, successfully brainwashing himself into a Bitcoin maximalist, or say a fanatical religious believer. How do you evaluate this person?

Todd:

Michael Saylor is an MIT graduate from a top university, successful at a young age, previously sold several startups successfully, and finally managed to generate $250 million in cash at MicroStrategy, which is quite remarkable.

Studying his life history reveals an interesting point - he wrote a book about the mobile internet wave in 2012, when smartphones were just beginning to become popular in 2012-13. His ability to predict the rise of mobile internet in 2012 shows his accurate judgment.

He studied two degrees at MIT: Aerospace Engineering and History of Science. This combination is very special, almost tailor-made for him. The History of Science major combines arts and sciences, studying how science makes breakthrough developments, which helped him judge future technology trends.

In interviews, he often quotes scientists like Newton and Einstein. Whether from his academic background or his later book about the mobile internet wave, it proves he has clear personal judgments about future technology trends, and these judgments have been verified. His speeches are logical, and his viewpoints are clear. Having such a person as an important figure in the Bitcoin community greatly helps Bitcoin's propagation.

His most famous video has 10 million views on YouTube, spending 3-4 hours explaining why he chose Bitcoin. His core argument is that the current economic system keeps printing money - while inflation appears to be 2%, it's actually at least 7% because economists keep adjusting the inflation basket composition. This is his basic tenet for investing in Bitcoin.

This theory is hard to refute because governments and central banks are indeed continuously printing money worldwide, and this anxiety is universal. In countries like Argentina, currency depreciation might reach dozens of times. Meanwhile, Bitcoin has a clear 21 million cap that will never change.

Two unchangeable facts: governments will continue printing money, and Bitcoin's total supply is fixed. This makes Bitcoin a very robust anti-inflation asset. Michael Saylor holding such beliefs will help him go further on his Bitcoin investment path.

No Ethereum Version of MicroStrategy Will Emerge

TechFlow: Ethereum has shown weakness this year, with people often mocking Ethereum using Bitcoin and Solana's strength. Do you think there will be an Ethereum version of Michael Saylor or MicroStrategy in the future?

Todd:

This is pure prediction, but I think it's unlikely. The reason is that MicroStrategy and Saylor's emergence had specific backgrounds, which Ethereum doesn't possess.

Bitcoin's narrative has been eternal since its birth - from the moment Satoshi embedded the news about the finance minister preparing to bail out banks in the genesis block, it established its position as opposing fiat inflation and becoming true value storage.

In Saylor's words, fiat is just currency, while Bitcoin is capital - these are completely different concepts.

In comparison, Ethereum's positioning is to continuously provide blockchain services using the most advanced technology. From our experience operating Ethereum mining pools, Ethereum keeps evolving: from PoW to PoS to solve energy issues, to the recent Beacon Chain strategy proposed at Bangkok Devcon, planning to ZK-ify the entire chain. This shows Ethereum's completely different development path from Bitcoin.

For large capital, they prefer predictable, stable investment targets rather than continuously changing projects.

Saylor once mentioned that Satoshi's anonymity is very appealing, which fits typical MBTI N-type personality traits. While Vitalik's continuous activity in Ethereum, though proposing many good points, might make some investors hesitate. Like the saying in "Let the Bullets Fly" - "your absence matters to me" - large capital investments need certainty and don't want projects suddenly changing direction.

Therefore, an Ethereum version of MicroStrategy might be difficult to emerge, though small-scale versions aren't impossible. Especially considering Ethereum's current market cap is relatively low, it doesn't require as massive capital input as Bitcoin. There's always investment logic in the market of "Bitcoin is too expensive, need to find cheaper targets," and Ethereum might become these investors' first choice.

TechFlow: Completely agree with the Bitcoin narrative analysis. Bitcoin's charm lies in its simplicity - it doesn't need technical delivery and can't be falsified. It's like a perfect closed loop, with each crisis strengthening rather than weakening its value proposition. In the crypto world, we've seen too many grand visions and complex technical solutions, but ultimately, it's the simplest Bitcoin that has stood the test of time. It doesn't need marketing, roadmaps, or technical promises. In a world full of uncertainty, the most precious thing is certainty, and that's Bitcoin's greatest charm.

Finally, thank you, Todd！

Todd:

Lastly, I quote Saylor: Bitcoin will triumph, but not everyone will win with it.