Source: Talking about Li and other things
After several days of sharp declines, today (February 28) we finally saw Bitcoin starting with 7 again. I wonder how the mood of our friends is now after experiencing the devastation of Black Friday again?
Let’s first briefly recall the recent Black Friday, maybe we’ll get used to it after experiencing it many times:
On Friday, January 17 (EST), the TRUMP token was officially launched and began to drain market liquidity.
On Friday, January 24, the global AI stocks plunged due to Deepseek, and the crypto market also fell sharply.
On Friday, January 31, Trump’s tariff policy triggered further shocks in financial markets, and ETH entered a massive liquidation crash in the following days.
On Friday, February 14, the Argentine President’s LIBRA token was released, further triggering a liquidity crisis in the cryptocurrency world.
On Friday, February 21, a new black swan event emerged when BYBit was hacked and assets worth $1.5 billion were stolen.
On Friday, February 28, Trump’s tariff policy escalated, Bitcoin fell below $80,000, and altcoins were further slaughtered.
Yesterday, I saw friends in the group discussing Strategy (MicroStrategy, formerly MicroStrategy). Coincidentally, this morning I also saw some friends leaving messages in the background asking questions about Strategy. Every time the market plummets, it seems that there are always some friends who are more concerned about whether these large institutions will be liquidated.
So in the next sharing, let’s continue to discuss Strategy.
In fact, we have already had some special introductions and summaries on Strategy in previous articles. For example, the two most recent articles were on February 10 this year and November 28 last year (2024). Interested friends can search and review the corresponding historical articles.
As of this writing, Strategy holds a total of 499,096 Bitcoins, with an average purchase cost of $66,380.42, the most among all institutions. As shown in the figure below.
Strategy has been buying Bitcoin since September 2020. The total value of Bitcoin currently held is $40.78 billion, the total DCA investment cost is $33.11 billion, the P/L is $7.648 billion, and the overall rate of return is 23.08%. Due to the recent price fluctuations of Bitcoin, if we only look at their Bitcoin holdings in recent months, they are also in a floating loss, as shown in the figure below.
Then, let's compare the stock trend of MSTR. In fact, the stock trend of Strategy is basically tied to the sentiment of the crypto market. For example, since February, MSTR has also shown a relatively obvious downward trend, with a drop of 31%, as shown in the figure below.
Seeing this, some of you may be curious: Since the price of BTC and MSTR is continuing to plummet, will there be any problems with the strategy if the market continues to develop like this?
In previous related articles, we have introduced that the funds used by Strategy to purchase Bitcoin are mainly external funds raised through the issuance of bonds (i.e. convertible bonds), and of course also include some of the company's idle funds, share issuance and other funds.
In fact, even at present, Strategy's approach is a very bold innovative attempt and genius design. The general historical background is that due to the global liquidity crisis caused by the outbreak of the COVID-19 pandemic in 2020, countries have begun to stimulate the economy through monetary easing policies. At the same time, large-scale water release has led to the depreciation of legal currency and inflation risks. At that time, Michael Saylor (founder of Strategy) began to re-evaluate the value of Bitcoin. He believed that if the global supply of legal currency increased by 15% per year, people would need an asset that was not directly linked to legal cash flow. Finally, under the leadership of Michael Saylor, Strategy began to transform (from a software company to a financial company) and prioritized Bitcoin as the balance sheet of the institution, chose to embrace the Bitcoin strategy, and started the buy-buy-buy mode.
The core of this Bitcoin strategy is that the Strategy itself can obtain the potential benefits of Bitcoin's long-term upward trend, but of course it will also bear the potential risks of Bitcoin's short-term decline.
But as far as Strategy is concerned, what they have to do is actually very simple, that is, to continue to buy Bitcoin, and how much they can buy in the future depends mainly on their ability to raise external funds. In other words, if one day in the future their debt scale exceeds the company's asset scale, then the possibility of continued refinancing will be greatly reduced. In other words, Strategy's next move is more determined by external factors, and they themselves should not waver in their "determination" to continue buying Bitcoin for a long time. We can also understand Strategy's gameplay as a kind of "smart leverage", and this strategy does not seem to directly lead to "forced liquidation". In plain words, Strategy's current risk of direct liquidation is actually not high.
However, there is a situation that may cause some pressure on Strategy. For example, Strategy continues to buy Bitcoin when it is high (by issuing convertible bonds), but unfortunately Bitcoin starts to enter a bear market at the same time. When the price of Bitcoin continues to plummet, causing the total value of Bitcoin held by Strategy to be lower than the total amount of its convertible bonds, it may further cause MSTR to fall. In this way, it will be difficult for Strategy to continue to raise external funds by issuing convertible bonds, which will cause certain pressure on Strategy.
To sum up, several conditions need to be met at the same time to put pressure on Strategy: when Bitcoin is at a high level, it continues to issue bonds and buy coins crazily (continuously raising the purchase cost), Bitcoin is in a long-term bear market (insufficient liquidity leads to financing difficulties), Bitcoin prices begin to plummet, the total value of Bitcoin holdings is lower than the size of its debt, and MSTR lacks liquidity and begins to plummet (which will also make new financing difficult).
If the pressure is great enough, Strategy will theoretically have several response options:
The first is to continue issuing new shares and repay the loan after obtaining the funds.
The second is to continue issuing new bonds and use new bonds to repay old debts.
The third is to directly sell part of the Bitcoin and repay the loan after getting the funds.
So, will this kind of pressure happen? How much pressure will it cause? Let's continue to look at some data:
1. Comparison between MSTR stock market value and BTC holdings
As of this writing, MSTR’s market cap is $605.77, and the total value of Bitcoin held by Strategy is $40.78 billion.
Let us explain it in plain words. As long as the market value of MSTR is greater than the total value of its Bitcoin holdings, it means that there is a market value premium rate (the current premium rate is 48.55%), which means that Strategy can still buy BTC by diluting MSTR’s equity, and at the same time further increase the “coin content” of each MSTR share.
The increase in the "coin content" means that MSTR's net assets per share are actually increasing. In this way, for shareholders (investors), it is still worthwhile (profitable) for Strategy to continue buying more Bitcoin.
2. Comparison of Strategy debt size and BTC holding value
Strategy's current debt is about $8.2 billion, and these debts are backed by $40.7 billion worth of Bitcoin as reserves. In plain words, their current leverage ratio is only about 20%, and this position size still looks very healthy. As shown in the figure below.
Moreover, these debts are mainly the convertible bonds we mentioned above, and most of the bonds will not mature until after 2027. Therefore, at present, Strategy does not seem to have any repayment pressure.
3. Michael Saylor, founder of Strategy
Saylor has now become a very staunch BTC supporter and has previously made some exaggerated-sounding statements on social networks, such as:
“Even if BTC drops to $1, Strategy will not be liquidated, on the contrary we will buy all the Bitcoins.”
"If you have to, I suggest selling a kidney but keeping the Bitcoin." (Meaning that you can't sell Bitcoin even if you sell a kidney, haha)
He even hinted in an interview that he would destroy his Bitcoin private keys after his death to ensure that his Bitcoins would never be sold.
Regardless of whether the capitalist's remarks are true or false, he is indeed using actual actions (real money) to buy Bitcoin, and he is the most typical representative and role model of regular investment in Bitcoin.
Of course, Saylor has his own reasons for saying this, because he currently has 46.8% of Strategy's voting rights (holding 10% of the company's shares), which means that he currently has almost complete control over MSTR's decision-making power. In addition, he is said to personally hold about $1.9 billion worth of Bitcoin.
To sum up, even though Bitcoin has faced a series of sharp declines in price recently, it does not seem to cause too much pressure on Strategy, so the recent rumors that Strategy will collapse are even more nonsense.
Of course, no one can predict what will happen in the future. We don’t know if there will be any larger-scale black swan events next, but if there are no larger-scale black swan events (for example, Strategy goes bankrupt due to some other things, or some policy factors are affected, or the global macroeconomic changes, etc.), at least we think that Strategy’s gameplay before 2028 is basically not too risky. In 2028, as some debts mature, bondholders may ask for cash repayment (rather than stocks). If the situations mentioned in the summary paragraph above are encountered at that time, then Strategy may be forced to sell part of the Bitcoin to repay the loan. At that time, it will really form a heavier blow to the crypto market and add fuel to the fire, and may cause some chain risks.
Many people know that investing in Bitcoin is a relatively good way to invest, but even if we put aside the size of the funds and just talk about personal style and courage, most of the people who claim to be firm believers in Bitcoin can only be regarded as younger brothers in front of Michael Saylor.
In fact, encountering a plunge like the one in the past few days is not terrible. For some people, it is a new opportunity to accumulate. As the friends in the group shared: No one can buy at the exact bottom. What we can do is to make ourselves operate against human nature in the panic of the plunge. Similarly, no one can sell at the exact top. What we can do is to make ourselves continue to operate against human nature in the carnival of the surge.
As for the future market trend, even if we ourselves remain optimistic (refer to the previous series of articles, optimism does not mean that there will be no new black swan events this year, nor does it mean that Bitcoin will 100% reach new highs, but it is only a mental expression based on the overall state of our own positions), but it is estimated that many partners have fallen into the pessimism of the bear market. In short, continue to manage your own positions based on your personal risk preferences. It is better to simply forget about the bull market or the bear market and only focus on the probability of rise and fall in different stages of the market. Last year, the crypto market formed a positive variable because of Trump, and now it has a negative variable because of Trump. Isn’t it interesting? In fact, the development of the market itself is a kind of continuous unpredictability. I wish you all good luck!
