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Central to MicroStrategy's strategy is what the company terms the "Bitcoin flywheel." This mechanism leverages convertible bonds as a significant source of funding. Convertible bonds allow investors to lend money to MicroStrategy, often at a 0% interest rate, with the option to convert their debt into shares of the company if its stock price appreciates.
By using this approach, MicroStrategy creates a cycle where they raise capital by issuing these bonds, then use the funds to buy more Bitcoin. As Bitcoin's value rises, so does MicroStrategy's stock price, enabling the issuance of more bonds and the purchase of additional Bitcoin, perpetuating the cycle of growth. This is akin to a property developer borrowing against increasing real estate values to finance further investments.