MicroStrategy's market value surges, driven by Bitcoin and capital leverage

In 2023, MicroStrategy's story is like a maze adventure of capital in the financial market, full of adventure and ambitious calculations. Its market value has soared from US$1.8 billion at the beginning of the year to the current US$111 billion. The driving force and logical chain behind this are intriguing. As a company with Bitcoin as its core strategy, MicroStrategy's actions are not only a bridge between traditional financial means and the cryptocurrency market, but also have a profound impact on the future of the web3 industry. Aiying FundInsight will deeply interpret MicroStrategy's strategic logic in Bitcoin-driven, capital leverage and governance changes, as well as its revelation to the entire web3 financial ecosystem.

1. Bitcoin-driven: From marginal assets to core strategy

MicroStrategy's growth path is undoubtedly inseparable from its aggressive layout of Bitcoin.At the beginning of 2023, the company's market value was far lower than the value of its Bitcoin holdings, but through large-scale financing and a series of high-risk capital operations, its market value is now 3.55 times that of its Bitcoin holdings, equivalent to 5.9% of Bitcoin's market value.

Michael Saylor regards Bitcoin as digital gold that surpasses traditional currencies, and builds the core logic of the company's growth on this basis. In the context of web3, MicroStrategy represents a new type of enterprise, which uses digital assets as the underlying support and attempts to leverage the long-term appreciation expectations of Bitcoin to leverage the confidence of the traditional capital market in the future. As the price of Bitcoin rises, MicroStrategy's market value also rises, and the capital market has given its Bitcoin-driven premium a high degree of trust.

However, the market's attitude towards this "digital gold standard" strategy is not completely consistent. Although some investors are confident about the future of MicroStrategy, and some even believe that its market value may surpass Bitcoin itself in the future, this idea is not recognized by all rational investors. The decentralized spirit of web3 and the volatility of Bitcoin make this speculation full of uncertainty. After all, market confidence is not static.

2. Leveraged capital operation: an innovative combination of dilution and zero-coupon bonds

MicroStrategy's success lies not only in its choice of Bitcoin, a cutting-edge asset, but also in how it cleverly uses the tools of the traditional capital market to obtain unprecedented capital leverage in an innovative way.

1. Equity dilution: value-added dilution strategy

Aiying FundInsight observed that MicroStrategy's financing methods mainly include two types: equity dilution and zero-coupon bonds.

(1) The process and logic of equity dilution

• MicroStrategy raised funds by issuing additional shares, and used almost all of the proceeds to purchase Bitcoin. This practice has formed a unique "value-added 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, which in turn drives up the company's stock price. Binding shareholder interests After each additional share issuance, the company immediately invests funds in the purchase of Bitcoin. This immediate reinvestment of funds closely links shareholder interests with the long-term appreciation of Bitcoin. This propagation effect in the financial market continues to enhance investors' confidence in the company's future. Many investors even see this as a way to indirectly hold Bitcoin and are willing to pay an additional premium for this asset allocation model. 2. Zero-coupon convertible bonds: a game of capital returns (1) Strategy for issuing zero-coupon convertible bonds: Another way MicroStrategy raises funds is through zero-coupon bonds. In the latest round of financing, MicroStrategy increased the size of its bonds from US$175 million to US$2.6 billion, with a zero coupon.

• Returns depend on stock price growth:Holders of these bonds do not receive traditional interest income, but instead have their returns closely tied to the future growth of MSTR's stock price.Theycan be converted into MicroStrategy's common stock at some point in the future.This means that investors' ultimate returns depend entirely on the rise in MicroStrategy's stock price, somewhat similar to the company's employee options, which in turn are directly related to the value of the company's Bitcoin holdings.

(2) Investors’ high-risk bet:

• Investors took a high-risk bet. They chose to give up regular interest income and instead believed in MicroStrategy’s future growth - especially its close connection with Bitcoin.

• Nature of long-term call options:

• These

bonds are essentially equivalent to a long-term call option

, and investors can only profit if MicroStrategy’s stock price rises significantly. This potential source of income mainly depends on the trend of Bitcoin prices and the market's confidence in MicroStrategy's governance capabilities.

(3) Chain reaction in the capital market：

• This financing method is not just an investment of capital, but more like a game with the future market. This game triggers a huge chain reaction,each link is driving overall growth, full of the delicate balance between high risk and high return.

• Synergy with equity dilution:MicroStrategy'sbond financing strategy complements its equity dilution, forming a unique capital operation model. This model resonates in the financial market, and the market's confidence in the company's future continues to drive capital inflows. The core of this game is the firm belief in Bitcoin and the optimistic expectations for the future world of digital assets.

Third, governance changes: from Saylor's control to institutionalized governance

While capital expansion, MicroStrategy's governance structure has also undergone important changes. Michael Saylor's fall from absolute control of voting rights marks the company's transformation from a "controlled company" to a more market-oriented and institutionalized governance model.

In the past, Saylor had the final say in the company's decision-making through his control of Class B common stock, and MicroStrategy was therefore classified as a "controlled company" by NASDAQ. However, With the large issuance of Class A common stock, the voting advantage of Class B stock was diluted, and Saylor's voting rights fell below 50%. The company was therefore forced to set up an independent nomination committee, and the board's decision-making began to shift towards a more collective direction. This change not only means that the company needs to respond to market supervision more transparently, but may also bring more uncertainty to its future strategic decisions.

In the web3 ecosystem, the transformation of governance structure often represents the company's transition from the radical growth stage of the start-up to a more stable and sustainable development period. The case of MicroStrategy reflects the typical characteristics of this transformation:rapid expansion under personal leadership and gradual standardization under institutional governance. For the web3 industry that pursues the concept of decentralization, this transformation is also an inevitable trend of internal power checks and balances.

IV. In-depth thinking of Aiying FundInsight

MicroStrategy's capital operation path has triggered in-depth thinking of Aiying FundInsight. Can such a strategy be sustained, or how will it change the entire web3 financial ecosystem? Under the leadership of Michael Saylor, MicroStrategy has almost recklessly pushed Bitcoin to the center of traditional capital markets. Through a combination of equity dilution and zero-coupon bonds, the company has made a bold move in the capital market, betting entirely on the long-term value of Bitcoin, but is this model a desperate gamble or a forward-looking foresight of the future asset landscape? From a deeper perspective, MicroStrategy has transformed the company into a structured instrument that indirectly holds Bitcoin by leveraging the faith of shareholders and bondholders in Bitcoin. It not only relies on the market's perception of Bitcoin, but also opens up a new path in the financial field by linking traditional financing tools with digital assets. However, such a path is full of risks and uncertainties, especially when Bitcoin prices fluctuate sharply, the leverage risk faced by MicroStrategy will be sharply amplified.

What is more worth thinking about is the demonstration effect of this capital operation method on the entire web3 industry. Many companies may be inspired to follow MicroStrategy's example and use crypto assets as their main assets for structured holding and financing. However, in the absence of hedging measures and diversified risk management, such a strategy is likely to bring systemic market risks. Although MicroStrategy's debt and equity dilution methods seem successful, the logic behind them is based on the premise that Bitcoin prices continue to rise. Once this premise is shaken, the entire foundation of financing and growth will also be impacted.

Aiying FundInsight believes that MicroStrategy's case is both a profound experiment in new capital operations and a high-risk market gamble.It shows how web3 companies use traditional financial markets to expand their digital asset holdings, but it also reveals the significant risks hidden in this strategy. If the market ecology of encrypted assets can continue to optimize in the future, MicroStrategy may become a pioneer of a new business model; but if market sentiment reverses, such high-leverage operations may become a huge risk explosion point.Analysis of MicroStrategy's debt structure and potential risks.