Why are MicroStrategy and Meitu buying and buying like crazy?

On March 12, the American business software company MicroStrategy announced that it had purchased another 262 bitcoins for 15 million U.S. dollars, and the average price had reached an astonishing 57,146 U.S. dollars. MicroStrategy stated that it now owns about 91,326 bitcoins, purchased at a price of US$2.21 billion, with an average price of US$24,214 per bitcoin. According to the current price, the value of the Bitcoin holdings exceeds 5 billion U.S. dollars, and the profit is close to 3 billion U.S. dollars.

In the past seven months, MicroStrategy’s purchases showed no signs of stopping. According to the company’s publicly disclosed [document](1), MicroStrategy stated that Bitcoin is the company’s primary value reserve option and did not sell. The willingness of Bitcoin is to "hold it for 100 years."

MicroStrategy's massive purchase of Bitcoin has attracted some imitators. Tesla is the most famous among the imitators. This year, it bought 1.5 billion U.S. dollars worth of Bitcoin. Before that, Musk had also been on Twitter. The same as Saylor discussed the possibility of buying Bitcoin in bulk. In addition to Tesla, Twitter CEO Jack Dorsey's payment company Square also bought a large amount of Bitcoin.

Cai Wensheng’s Meitu Company has also become the “first person to eat crabs” in Asia. He announced on March 5 that he would spend US$17.9 million to buy 379 Bitcoins and US$22.1 million to buy 15,000 Ethereum. On March 17, Meitu announced that it had purchased 50 million US dollars of Bitcoin and Ethereum again, and was trying to create the image of a listed company that was "the first large-scale purchase of Ethereum."

However, after the news was released one after another, Meitu's stock price did not seem to fluctuate, still below 3 Hong Kong dollars. And of course, after carefully investigating MicroStrategy, we will find that its executives continue to reduce their stock holdings to cash out, and the company also has a rich dark history (Meitu and Cai Wensheng are also similar). This not only makes us wonder, is there a solid demand for institutions entering the market for cryptocurrency, or is it a bubble?

The much criticized Microstrategy company and Michael Saylor

What is the origin of this MicroStrategy company that bought bitcoins? MicroStrategy was founded by Michael Saylor in 1989 as a business software company, and the company's past was not very glamorous.

According to the US "New Republic" website [report] (2), in 2000, MicroStrategy had to pay a fine of 11 million U.S. dollars to the SEC due to fraudulent accounts, of which Michael Saylor himself was responsible for 8.2 million U.S. dollars. Even so, Michael Saylor still serves as the company's CEO to this day.

At the end of 2020, Michael Saylor transferred 50,000 shares of MicroStrategy to Alcantara LLC, which he controlled. This move also attracted public suspicion. According to regulations, the reduction of company shares by company executives requires timely disclosure to the public, so many executives The stocks are often operated through non-listed companies that they control. And Michael Saylor's transfer of stocks is also suspected of evading supervision. Recently, MicroStrategy executives have also continued to cash out, causing stock prices to fall.

Will the US-listed Bitcoin ETF be far away?

Since the Winklevoss brothers applied to the SEC for a Bitcoin ETF in 2013, countless companies have made similar attempts, all of which ended in failure. The reason is that the SEC believes that Bitcoin has huge opacity and its price is easily manipulated.

However, not only are more and more institutions accepting Bitcoin, some regulatory agencies have also embraced it. In February, Canada listed the country’s first Bitcoin ETF, which ran ahead of the United States. Will the regulatory attitude change as a result?

Regardless of the SEC's attitude, the arrival of Bitcoin ETFs seems inevitable. Even if the SEC has not approved any company's Bitcoin ETF, companies like MicroStrategy can also turn their stocks into Bitcoin ETFs through the "curve to save the country".

At present, the market value of MicroStrategy is nearly 6 billion U.S. dollars, and the 91,064 bitcoins held by the company are worth 4.6 billion U.S. dollars. That is to say, 76% of the value of MicroStrategy’s stock comes from Bitcoin. If the price of Bitcoin grows in the long term Exceeding the growth rate of the company's commercial software business, this ratio will gradually increase. When it approaches 100%, MicroStratedy's stock is a Bitcoin ETF in the de facto sense. From a regulatory perspective, it will be acceptable at that time. A fait accompli. In the newly launched JP Morgan Chase cryptocurrency risk exposure basket, MicroStrategy accounted for up to 20%.

Non-ignorable risk

From the perspective of MicroStrategy's Bitcoin investment, this part of the investment is quite successful, because its holding cost is $24,119, and the current price of Bitcoin is above $50,000, that is to say, Bitcoin needs to fall on the current basis Half of the value will lead to a loss of investment in this part of Microstrategy.

However, the risk that Microstrategy faces is not only the decline in currency prices. The greater risk comes from the decline in its own stocks. In December 2020, MicroStrategy just announced the issuance of US$400 million in convertible bonds for the co-purchase of bitcoin. [ Citigroup](3) adjusted its rating to "sell", which caused the company's stock to fall by 13.9% the next day. It can be seen that Wall Street is not optimistic about a company betting too much cash in a volatile asset such as digital currency.

Another example is Tesla. After Tesla bought 1.5 billion U.S. dollars of Bitcoin, the company’s stock price has fallen by more than 200 billion U.S. dollars. At present, the market has allowed Musk to sell Bitcoin for repurchase. [Voice] of company stock (4).

However, Bitcoin assets only occupy a very small part of Tesla, and for companies like MicroStrategy, if the price of the currency falls in the future, its stock price will also fall. The decline in stock price will increase the difficulty of company financing, making It can no longer buy currency through the issuance of convertible bonds or new shares to maintain currency prices, which creates a vicious circle and may eventually lead to bankruptcy of the company. Judging from the history of Bitcoin over the past ten years, it is not impossible for the price of the currency to bear bears for a certain period of time. If this happens, the stock price of the company holding Bitcoin will be highly correlated with the trend of the currency price. Will further strengthen the volatility of Bitcoin. Bitcoin has proven its resilience, but it is unknown whether public companies that hold a large amount of Bitcoin can survive this catastrophe.