MicroStrategy’s “Wealth Code”: A Complete Analysis of the Financing and Buying Coin Strategy

In this article, Attorney Mankiw will dismantle the wealth code of MicroStrategy's financing and purchase of cryptocurrencies, and analyze whether it is possible to recreate an Asian version of MicroStrategy from the perspective of Chinese companies listed at home and abroad.

MicroStrategy, an American company known for its business intelligence and mobile software solutions, has attracted much attention in recent years for its aggressive investments in the Bitcoin market. Since it began buying large amounts of Bitcoin in 2020, its stock price has risen about 20 times. On October 30, 2024, MicroStrategy announced the so-called "21/21 Plan", which plans to conduct $21 billion in equity financing and $21 billion in bond issuance in the next three years, raising a total of $42 billion to buy more Bitcoin. MicroStrategy's financing strategy for buying coins has not only made it famous in the cryptocurrency field, but also triggered widespread discussion in the market about its investment strategy, risk management and future prospects.

In this article, Attorney Mankiw will dismantle the wealth code of MicroStrategy's financing and purchase of cryptocurrencies, and analyze whether it is possible to recreate an Asian version of MicroStrategy from the perspective of Chinese companies listed at home and abroad.

MicroStrategy’s “Wealth Code”: A Complete Analysis of the Financing and Buying Coin Strategy

Analysis of MicroStrategy’s Financing Channels

In August 2020, under the leadership of Chairman Michael Saylor, MicroStrategy boldly invested $250 million to purchase approximately 21,400 bitcoins, becoming the world's first listed company to incorporate Bitcoin into its funding strategy. Since then, MicroStrategy has been "surging" on the wave of Bitcoin, and has continuously increased its Bitcoin holdings through funds obtained through financing methods such as bond issuance. The number of bitcoins it currently holds has exceeded 420,000. This strategy has enabled MicroStrategy to obtain significant returns on investment when the price of Bitcoin rises.

According to attorney Mankiw's observations and analysis, MicroStrategy has adopted a "diversified" strategy in its financing process. It not only raised funds through issuing bonds, but also cleverly used equity financing, bank loans and other means to "add bricks and tiles" to its Bitcoin investment plan.

Bond financing

MicroStrategy raises funds primarily through the issuance of convertible bonds, convertible preferred notes, and senior secured bonds, specifically for the purchase of Bitcoin, with the most common financing method used by MicroStrategy being convertible bonds. These debt instruments vary in interest rates and maturity dates, but their common purpose is to expand MicroStrategy's Bitcoin holdings.

Convertible bonds: This is a hybrid security that allows bondholders to convert the bonds into common stock of the company within a certain period of time. For example, in December 2020, MicroStrategy raised $650 million by issuing convertible bonds, all of which were used to purchase Bitcoin.

Convertible senior notes: This is a special debt instrument that gives the holder the right to convert the notes into preferred stock of the company at some point in the future. Preferred stock is a special type of stock that is compensated before common stockholders in the event of a company's bankruptcy liquidation. For example, in February 2021, MicroStrategy issued $900 million worth of convertible senior notes, and the proceeds were used to purchase Bitcoin;

Senior secured notes: It is secured by the company's assets and has a higher priority in the company's debt structure. In the event of bankruptcy or liquidation of the company, holders of senior secured notes will be repaid before other unsecured creditors. For example, in June 2021, MicroStrategy completed the issuance of senior secured notes worth US$500 million, and the proceeds were also used to purchase Bitcoin.

Equity Financing

Equity financing, that is, companies raise funds by issuing additional shares, is one of MicroStrategy's important "magic weapons". The company sells Class A common stock, just like drawing a steady stream of "living water" from the "capital pool" of the capital market, and investing the proceeds in large quantities in Bitcoin purchases. For example, in August 2021, MicroStrategy raised funds by selling $900 million worth of common stock to buy Bitcoin.

MicroStrategy's practice of purchasing Bitcoin by selling common stock has formed a unique "value dilution" logic, that is, although the company has diluted the rights and interests of existing shareholders, due to the expected appreciation of Bitcoin, this dilution is interpreted by the market as an appreciation of asset value, thereby driving up the company's stock price.

Bank Loans

MicroStrategy is also actively involved in the field of lending. It uses its own Bitcoin as collateral and boldly borrows funds from financial institutions. This "borrowing chickens to lay eggs" strategy enables it to seize every investment opportunity in the market where Bitcoin prices fluctuate. When the price of Bitcoin is in a favorable position, timely borrowing funds to buy Bitcoin is like seizing the opportunity on the "golden track" of the market and further expanding the scale of its Bitcoin assets. For example, in September