Author: Nancy, PANews
With its main business in business intelligence (BI) performing mediocrely, and its side business in Bitcoin investment thriving, MicroStrategy is undoubtedly one of the big winners in this bull market. Thanks to Bitcoin's strong momentum, MicroStrategy achieved huge profits and drove its stock price soaring after boldly betting on Bitcoin, and this 'lying win' strategy is attracting more and more imitators trying to replicate its success.
However, while MicroStrategy achieves capital appreciation through Bitcoin's super strong returns, the high premium of its stock has also raised market concerns, with well-known short-seller firm Citron openly stating its intention to short the stock. Can MicroStrategy's leveraged game continue to unfold?
Bitcoin holdings valued over $32.6 billion, stock price surged 497% this year.
Since adopting a Bitcoin investment strategy in 2020, MicroStrategy has become an undisputed whale, and now the value of its Bitcoin reserves has surpassed the cash and securities held by companies like IBM and Nike.
According to data from BitcoinTreasuries.com, as of November 22, MicroStrategy has purchased over 331,000 Bitcoins at an average price of about $49,874, accounting for nearly 1.6% of the total Bitcoin supply, with a current value of over $32.69 billion. If calculated at the current Bitcoin price of about $99,000, MicroStrategy has realized about $16.2 billion in floating profits over the past four years.
Despite achieving substantial returns, MicroStrategy has not stopped increasing its Bitcoin exposure, and behind its unlimited money printing is its issuance of stocks and convertible bonds to purchase Bitcoin. According to MicroStrategy's latest announcement, the company has completed the issuance of $3 billion in zero-interest convertible senior bonds, which will mature in 2029, with a conversion price at a 55% premium to the market price, about $672 per share. This issuance raised approximately $2.97 billion net, and MicroStrategy plans to use most of the funds to purchase more Bitcoin and for other company operations. Furthermore, of the $21 billion raised from previous stock financing, $15.3 billion is still available for purchasing Bitcoin, and there are plans to raise $42 billion for Bitcoin investments over the next three years.
Among them, according to the latest data shared by @thepfund, since November 18, the list of MicroStrategy's major bondholders (who have the right to convert bonds into stocks) shows that Vanguard Group ranks first, followed by BlackRock, with many well-known financial institutions and investment companies such as Goldman Sachs, JPMorgan Chase, and Deutsche Bank also appearing on the list.
The strengthening of Bitcoin's yield has also boosted market sentiment towards MicroStrategy's prospects. Data shows that MicroStrategy's market capitalization has reached $80.506 billion, nearly 2.5 times the value of its Bitcoin holdings, and at one point it ranked among the top 100 U.S. publicly traded companies by market capitalization. Moreover, in terms of stock price performance, MSTR's price has climbed to $397.28, about 14 times the stock price when the company first purchased Bitcoin, having risen 497.8% this year alone, far exceeding the corresponding increase in Bitcoin. Of course, MSTR's trading is also very active, with Tradingview tracking the most active U.S. stocks Top 100 showing that MSTR's trading volume reached $39.9 billion yesterday (U.S. time), second only to Nvidia's $58.8 billion, ranking second.
MicroStrategy shareholders have also achieved significant appreciation effects. According to MicroStrategy founder Michael Saylor's recent disclosure on social media, MSTR's financial operations have realized a 41.8% return on Bitcoin, providing its shareholders with a net gain of approximately 79,130 BTC. This amounts to about 246 BTC per day, without the costs, energy consumption, or capital expenditures typically associated with Bitcoin mining. According to third-quarter 13F filings tracked by Fintel, the number of institutional holders of MSTR has increased to 1,040, totaling 102 million shares (currently valued at $40.52 billion), with shareholders including Capital International, Vanguard Group, Citadel, Jane Street, Morgan Stanley, Hainaut International Group, and BlackRock.
In this regard, CoinDesk analyst James Van Straten once analyzed that MicroStrategy's shareholders are a unique group. Usually, dilution of equity for shareholders is considered a bad thing, but as shareholders of MicroStrategy, they seem very happy to see their equity diluted because these shareholders know that MicroStrategy is buying Bitcoin, a strategy that effectively increases the value per share, which means that shareholder value also increases.
High stock price premium causes controversy, and the sustainability of the leveraged strategy becomes the focus.
Faced with the high premium of MicroStrategy's stock, the market has also begun to show divergence regarding its underlying leveraged strategy.
Bullish participants believe that MicroStrategy has successfully leveraged the upside potential of Bitcoin and closely linked it with the performance of the company's stock, creating a huge value growth space, especially against the backdrop of a strong rise in Bitcoin prices. For example, Mechanism Capital partner Andrew Kang recently stated on platform X that MicroStrategy has been pushed up by Bitcoin, with the premium rate continuously hitting new highs, something traditional finance cannot comprehend, and there is a degree of sluggishness towards MicroStrategy's model; BTIG analyst Andrew Harte praised MicroStrategy's plan, believing that the company's management has done an excellent job utilizing volatility to raise additional legal capital to purchase Bitcoin and has significantly raised MicroStrategy's target price from $290 to $570.
'According to recent statistics, the average cost of MicroStrategy's Bitcoin is $49,874, meaning it is now close to a floating profit of 100%, which is a super thick safety cushion. MicroStrategy borrowed off-exchange leverage, and there is essentially no liquidation mechanism. Angry bondholders can at most convert their bonds into MSTR stock at a specified time, and then angrily sell it into the market. Even if MSTR is crushed to zero, it still does not need to forcibly sell these Bitcoins because the earliest repayment date for the debt borrowed by MicroStrategy is surprisingly in February 2027. Moreover, due to MicroStrategy's convertible bonds, bondholders generally make a profit, so the interest is relatively low,' said 0xTodd, partner at Nothing Research.
In the view of dForce founder Yang Mindao, MicroStrategy is not just about arbitrage in stocks, bonds, and currencies; the key is to transform MSTR into a real Bitcoin in traditional finance, which can be described as a remarkable achievement of 'borrowing the fake to repair the real'. As for when the flywheel will stop turning and the music will stop playing, the core issue lies in how long the stock and single stock net currency premium can be maintained. If market trends break expectations, and the supply of Bitcoin derivatives increases, the stock/currency premium of MicroStrategy shrinks to below 1.2, such financing will be hard to sustain. He also pointed out that MicroStrategy currently has a 300% premium on Bitcoin, and secondary market participants face high risks if they do not understand the variables involved. The continuously growing volume means that the premium will only shrink rather than expand; the ability to sustain financing is one of the variables that turns the premium from illusory to real.
However, bears believe that the current stock price premium of MicroStrategy has far exceeded the value of Bitcoin itself, which may rapidly narrow or even amplify the downside risk of the stock price with fluctuations in market sentiment.
For instance, Citron believes that as Bitcoin investments have become easier than ever (currently you can buy ETFs, COIN, and HOOD, etc.), MSTR's trading volume has completely detached from Bitcoin's fundamentals. While Citron remains bullish on Bitcoin, it has hedged by opening short positions on MSTR. Even Michael Saylor must know that MSTR is now overheated.
Steno Research's recent report also pointed out that 'the effect of MicroStrategy's recent stock split is gradually diminishing, further reinforcing the belief that its premium is unlikely to persist. The company's premium relative to its Bitcoin reserves recently soared to nearly 300%, indicating that the company's valuation has a significant divergence from the direct calculation of its assets and business fundamentals.' As regulatory agencies are increasingly favorable towards Bitcoin and cryptocurrencies, investors may choose to hold Bitcoin directly rather than MicroStrategy's stock.
BitMEX Research believes that MicroStrategy's price performance and rising model are 'Ponzi schemes' and unreasonable. The stock price has a huge premium compared to the value of the Bitcoins it holds, partly because some financial regulatory agencies prohibit people from buying Bitcoin ETFs, but investors are very eager for Bitcoin exposure, so they buy MSTR regardless of the premium, and MSTR also has a 'yield strategy'.
