Mindaoyang, a highly regarded crypto OG and the founder of dForce, recently shared this insights about MicroStrategy’s grand strategy. It is striking that he compared MicroStrategy’s structurally sound and long-term successful approach with Buffett’s Berkshire Hathaway in the traditional financial world. Let’s dive deeper to know more.
MicroStrategy has made significant gains in less than two years by converting its stock into a traditional financial version of Bitcoin. This strategy involves a three-way arbitrage between stocks, bonds and Bitcoin.
The Stocks/Bitcoin Relationship
Saylor’s strategy involves issuing shares at a premium and using the proceeds to buy Bitcoin, which increases the company’s intrinsic value and earnings per share. This linear leverage pushes the price of Bitcoin upward, increasing the company’s intrinsic value and earnings per share.
Convertible Bonds Beautifully designed
On the stock-to-bond ratio, he noted that as MSTR’s market capitalization rises, it enters more indexes, leading to the creation of more trading derivatives and greater trading volume, lowering both equity and bond financing costs . He noted that MicroStrategy’s convertible bonds are an exquisitely designed instrument, full of Buffett-like wisdom.
Notably, Saylor’s convertible notes are medium to long term, zero coupon, and have no principal repayments during the term. The choice between conversion to stock or cash repayment rests entirely with Saylor, eliminating the risk of default due to an inability to repay when due.
The Bitcoin Bond Relationship
He noted that MicroStrategy’s unique approach to the Bitcoin/Bond relationship, which involves borrowing USD bonds to buy Bitcoin, comes into play. Since the risk of default was zero, he borrowed a long-term “depreciating” asset (USD bonds) to buy an “appreciating” asset (Bitcoin), calling it a no-lose game. He emphasized that he has never seen anyone control the triple arbitrage of stocks, bonds and Bitcoin to such an extreme.
MSTR Reaching $1 Trillion Easier Than ETH?
From a premium levels perspective, he also cited that reaching an MSTR value of $1 trillion could be easier than Ethereum achieving the same milestone.
MicroStrategy in particular has a 300% premium on Bitcoin. For secondary market participants, he noted that the risk is extremely high if they don’t understand the underlying variables.
Will the same strategy work on other assets?
But can the same strategy be applied to other assets such as ETH, SOL or meme coins? He notes that the viability of this strategy depends on whether there are enough counterparties willing to accept similar terms for convertible bonds.
For assets like ETH and SOL, he says the strategy is more complex due to additional economic models, technology and market risks. However, the potential returns could be higher, potentially leading to a ‘degener’ version of MicroStrategy. He believes the whales are already preparing for this.
What do you think? Will companies follow in the footsteps of the micro strategy? Share it with us and stay informed.
Credit : coinpedia.org
