The Arbitrage Path of Bitcoin Acquisition Giants

In the past 5 years, a certain company has invested 40.8 billion USD, equivalent to Iceland's GDP, acquiring over 580,000 Bitcoins. This amount accounts for 2.9% of the total Bitcoin supply, or nearly 10% of active Bitcoins.

The company's stock soared 1600% over the past three years, far exceeding the approximately 420% increase in Bitcoin during the same period. This astonishing growth has pushed the company's market value beyond $100 billion and successfully placed it in the Nasdaq 100 index.

Such rapid expansion inevitably sparked controversy. Some predict that the company will become a trillion-dollar giant, while others question its model, fearing that the company may be forced to sell Bitcoin, leading to a long-term price decline.

Although these concerns are not unfounded, most people lack a basic understanding of the company's operations. This article will delve into the company's operating model and explore whether it truly poses a significant risk to the Bitcoin market or is, on the contrary, a revolutionary business model.

How does the company raise funds to purchase such a large amount of Bitcoin?

The company mainly raises funds to purchase Bitcoin through three channels: business operation income, issuing stocks/equity, and debt financing. Among these, debt financing is the most notable. However, in fact, the majority of the funds the company uses to purchase Bitcoin comes from stock issuance, that is, selling stocks to the public and using the proceeds to purchase Bitcoin.

This practice seems counterintuitive - why would investors buy company stocks instead of directly purchasing Bitcoin? The answer lies in the arbitrage opportunities.

Why do investors choose to buy company stocks instead of directly buying Bitcoin

Many institutions, funds, and regulated entities are restricted by "investment mandates" and can only invest in specific types of assets. For example, credit funds can only purchase credit instruments, and equity funds can only purchase stocks, etc. These restrictions ensure that fund managers and regulated entities only take on specific types of risks.

Due to these authorizations typically being conservative, a large amount of capital cannot enter emerging industries or opportunity areas, including cryptocurrency, especially being unable to directly access Bitcoin, even if fund managers want to gain exposure to Bitcoin in some way.

The company's founder keenly detected this gap and capitalized on it. Before the Bitcoin ETF emerged, the company's stock became one of the few reliable ways for entities that could only purchase stocks to gain exposure to Bitcoin. This led to the company's stock frequently trading at a premium, as demand outstripped supply. The company continually utilized this premium to acquire more Bitcoin, while increasing the amount of Bitcoin held per share.

In the past two years, investors holding the company's stock have gained a "return" of 134% in Bitcoin terms, making it one of the highest returns in large-scale Bitcoin investments in the market. The company's products directly meet the needs of entities that typically cannot access Bitcoin.

This is a typical "authorization arbitrage" case. Even after the launch of the Bitcoin ETF, this strategy remains effective because many funds are still prohibited from investing in ETFs, including most mutual funds managing $25 trillion in assets.

Debt Terms: A Support Rather Than a Constraint for the Company

In addition to a positive supply and demand situation, the company also has advantages in terms of debt. Not all debts are the same; corporate debt can sometimes operate similarly to a mortgage, where creditors have no right to sell company assets as long as interest payments are made on time.

This flexibility allows companies to respond more easily to market fluctuations and also makes company stocks a tool for "harvesting" the volatility of the cryptocurrency market. However, this does not mean that risks are completely eliminated.

Conclusion

The company is actually engaged in arbitrage activities, rather than simply leveraging operations.

Although the company currently does have a certain amount of debt, the price of Bitcoin would need to drop to about $15,000 per coin within the next five years to pose a serious risk to the company. As more companies adopt similar strategies, this model may further expand.

However, if these companies stop charging premiums in order to compete with each other and start to take on excessive debt, the entire situation could change and bring serious consequences.