Renowned crypto pioneer and dForce founder, Mindaoyang, has recently shed light on MicroStrategy’s ambitious strategy. Remarkably, he draws parallels between MicroStrategy’s robust, long-term strategy and the legendary financial approach of Buffett’s Berkshire Hathaway. Join us as we explore the intricacies of this comparison and what it means for the financial world.
The Stock/Bitcoin Relationship
MicroStrategy has leveraged its stock to achieve impressive profits in under two years, effectively transforming it into a traditional finance version of Bitcoin. This innovative strategy hinges on a triple arbitrage involving stocks, bonds, and Bitcoin. By issuing stock at a premium and using the proceeds to acquire Bitcoin, MicroStrategy boosts its per-share net asset value and earnings. This approach creates a linear leverage effect, driving up Bitcoin’s price and further enhancing company value.
Convertible Bonds Exquisitely Designed
The stock/bond relationship is another strategic component. As MicroStrategy’s market capitalization increases, it gains entry into more indexes, spurring the creation of additional trading derivatives. This uptick in trading volume reduces both equity and bond financing costs. MicroStrategy’s convertible bonds, crafted with Buffett-like wisdom, are noted for their medium- to long-term, zero-coupon features, with no required principal repayment during their term. This setup offers flexibility, allowing a choice between stock conversion or cash repayment, thus mitigating default risk.
The Bitcoin Bond Relationship
MicroStrategy’s distinctive approach to the Bitcoin/Bond relationship involves borrowing USD bonds to purchase Bitcoin. With minimal default risk, this strategy of using a “depreciating” asset (USD bonds) to obtain an “appreciating” asset (Bitcoin) is described as a no-lose proposition over the long term. Mindaoyang highlights that mastering the triple arbitrage of stocks, bonds, and Bitcoin to such an extent is unprecedented.
MSTR Reaching $1 Trillion Easier Than ETH?
From a premium perspective, Mindaoyang suggests that MicroStrategy’s path to a $1 trillion valuation might be more feasible than Ethereum reaching the same mark. MicroStrategy’s stock maintains a 300% premium on Bitcoin. However, for secondary market participants, the risks are substantial if they overlook the underlying variables.
Will The Same Strategy Work On Other Assets?
Can this strategic framework be replicated with other assets like Ethereum (ETH), Solana (SOL), or even meme coins? Mindaoyang posits that the success of this strategy relies on finding enough counterparties willing to engage in similar convertible bond agreements. For assets like ETH and SOL, the strategy is more intricate due to additional economic models, technology, and market risks. Yet, the potential for higher returns could lead to a “degen version” of MicroStrategy, with major investors already preparing for such possibilities.
