Original author: Glenn Hodl
Compiled by Odaily Planet Daily (@OdailyChina)
Translator｜Azuma (@azuma_eth)
Editor’s Note:
The trend of the cryptocurrency market is still confusing, but Microstrategy (MSTR), which is strongly tied to Bitcoin, has recently set a record high in stock price - U.S. stock quotes show that on October 9, MSTR once approached the $200 mark, reaching a high of $198.35.
Recently, overseas KOL Glenn Hodl gave his own analysis on Microstrategy's strong performance. Glenn believes that even if the price of Bitcoin stops growing, Microstrategy can use the differences in the market's valuation models for commodities and companies to create a "perpetual motion machine" that can sustainably increase its own market value, which will eventually make Microstrategy the world's largest company by market value.
The following is the original content of Gelnn, translated by Odaily Planet Daily.
Microstrategy CEO Michael Saylor seems to have found an economic model that is like a "perpetual motion machine."
I'm not sure this mechanism can be stopped, but if it continues to work, Microstrategy will likely become the most valuable company in the world.
The reason is that the way a company is valued is fundamentally different from the way a commodity such as Bitcoin is valued, which creates a paradox in the market's valuation of Microstrategy (MSTR) - commodities always trade at current prices; while companies trade at a discount to their future value.
Therefore, if you believe that Bitcoin will be worth more at some point in the future, then the Bitcoins held by Microstrategy will and should be worth more as well.
This may create a "second-order effect", that is, Microstrategy can continue to capture this premium expectation, which not only enhances the attractiveness of its narrative, but also helps boost its market value.
Some readers may still not understand, so the following is a static, super-simplified version.
Now there is a company that has issued 10 shares and holds 10 bitcoins.
Assume that the current spot price of Bitcoin is $2 and the market expects it to rise to at least $4. Using the model for valuing the company (trading at a discount to its future value, assuming a 50% discount), the company's stock price would be $3, a 50% premium to its net asset value.
The boss of the company saw an opportunity here, so he issued 2 new shares at the market price and used the $6 to buy 3 bitcoins from the market.
Now, the company has issued a total of 12 shares and holds 13 bitcoins. The ratio of "bitcoin holdings/share issuance" has changed from 1:1 to 1.08:1.
The key point is that the company now has a market cap of $36 and a treasury value of $26, the premium has shrunk to 38% (or the discount has widened to 62%), but the market will still value the company at a 50% discount to future value, which will push the company's market cap up to $39, corresponding to a per-share price of $3.25.
After the premium is repaired, the company's boss can repeat the above path again, that is, issue 2 new shares at the market price, and then use the $6.5 to buy 3.25 bitcoins from the market.
Now, the number of shares issued has reached 14, and the number of Bitcoins held has reached 16.25. The ratio of "Bitcoin holdings/stock issuance" has changed from 1.08:1 to 1.16:1.
Later, as the market repairs the premium again along the path of "valuing the company at a 50% discount to future value", the company's market value will be pushed up to $48.75, corresponding to a share price of just under $3.5.
So far, although the price of Bitcoin has not changed and the premium rate has returned to 50%, the company's "Bitcoin holdings/share issuance" ratio has increased by 16% and the stock price has also increased by about 16%.
At this point, the prototype of a monster has been born. The company can continue to repeat the above process, using the differences in the market’s valuation patterns for commodities and companies to create a perpetual motion machine, and the market will continue to increase its valuation of it, firstly because the future value of Bitcoin will increase, and secondly because the company’s “Bitcoin holdings/stock issuance” ratio is also increasing.
Microstrategy is this monster, and it is expected to become the largest company in terms of market capitalization.
