MicroStrategy's Bitcoin Bet: A Corporate Financing Revolution

MicroStrategy is not just a huge bet on Bitcoin, but also a revolution in corporate financing. This publicly traded company cleverly navigates two realms: one constrained by traditional financial rules, and the other led by steadfast believers who believe that Bitcoin can bring a better world.

The core driving force behind MicroStrategy's success is embracing and cultivating volatility. While volatility is the enemy of traditional investors, it is the friend of options traders, hedge funds, and retail speculators, making MicroStrategy one of the most active stocks in the market. Despite its annual revenue of only $496 million, its daily trading volume can rival that of tech giants.

The convertible bonds issued by MicroStrategy are extremely popular. Unlike regular bonds, convertible bonds provide security for the holder while allowing them to exchange the bonds for stock at a predetermined price before maturity. High implied volatility increases the value of the options, allowing the company to issue bonds with little to no interest payments. These bonds are not only one of the few ways for large investors to invest in digital assets but also one of the best-performing bonds, with a return of over 250% since issuance.

Saylor understands that institutional investors who measure performance on a quarterly basis will continue to buy his high-risk stocks to enhance portfolio returns. MicroStrategy increased its outstanding shares from 97 million to 246 million through secondary offerings and convertible bonds, while the stock price rose by 2666% during the same period. This cycle is self-perpetuating: issuing low-cost debt and equity, buying large amounts of Bitcoin to drive up prices, and causing significant fluctuations in stock prices, and so on.

As long as the price of Bitcoin continues to rise, everything will go smoothly. Even if Bitcoin crashes, MicroStrategy is unlikely to face issues. Bitcoin would need to drop more than 80% from its current level of over $100,000 and sustain that for at least two years for the company to potentially be unable to repay its current debts.

Saylor once again showcased his talent for leveraging capital markets and the behavior of bond investors. The $7 billion debt issued by MicroStrategy is all unsecured, and its Bitcoin cannot be used as collateral. Based on the current stock price of $373, over $4 billion of the debt is effectively equity.

Although imitators provide ammunition for MicroStrategy's opponents, the company's first-mover advantage and scale set it apart. MicroStrategy's options market is the deepest single options market in the world to date.

Sitting by the pool at the Villa Vikia, Saylor dismisses the critics. He insists that traditional business wisdom views capital as a liability, volatility as a bad thing, while the Bitcoin standard sees capital as an asset and volatility as a good thing.

This is not the first time that Seiler has taken a risk. He made and lost over 10 billion dollars during the internet bubble in 2000. In 2020, after the government implemented quantitative easing and injected trillions of dollars in stimulus measures, Seiler firmly believed that the company's remaining 530 million dollars in cash should be invested in Bitcoin.

Today, hundreds of large publicly traded companies around the world hold cash that is more than twice what is needed for their current operations and liabilities. Given the $35 trillion and growing national debt, Saylor has consistently emphasized that "cash is trash." He believes that without printing more money, debt cannot be repaid, while continuing to print money means that the yield curve will be suppressed.

Saylor stated that his mission is to promote "toxic-free capital" to the world. Reflecting on his entrepreneurial journey, he said: "I invented 20 things and tried to make them successful, but none of them truly changed the world. Satoshi Nakamoto created something, gave it to the world, and then disappeared, while we are just inheriting that spirit. This makes me more successful than those who try to commercialize every single idea of theirs; it is a lesson about humility."