Author: Nancy, PANews
The performance of its main business, business intelligence (BI) software, is mediocre, but its side business of investing in Bitcoin is booming. MicroStrategy is undoubtedly one of the big winners in this bull market. Due to the strong momentum of Bitcoin, MicroStrategy achieved huge profits and drove its stock price to soar after boldly betting on Bitcoin. This win-win strategy is also attracting more and more companies to follow suit, trying to replicate its successful experience.
However, while MicroStrategy has achieved capital appreciation with the help of Bitcoin's super earnings, the high premium of its stock price has also caused market concerns. Citron, a well-known short-selling institution, has publicly expressed its short position. Can MicroStrategy's leverage play continue?
Bitcoin holdings are worth more than $32.6 billion, with shares soaring 497% this year
Since adopting a Bitcoin investment strategy in 2020, MicroStrategy has become a worthy whale, and its Bitcoin reserves are now worth more than the cash and marketable securities held by companies such as IBM and Nike.
According to BitcoinTreasuries.com data, as of November 22, MicroStrategy purchased more than 331,000 Bitcoins at an average price of approximately $4,9,874, accounting for nearly 1.6% of the total Bitcoin supply and currently worth more than $32.69 billion. If calculated based on the current Bitcoin price of approximately US$99,000, MicroStrategy has achieved floating profits of approximately US$16.2 billion in the past four years.
Despite the huge returns, MicroStrategy has not stopped adding to Bitcoin, and behind its unlimited money printing is its purchase of Bitcoin through the issuance of stocks and convertible bonds. According to MicroStrategy’s latest announcement, the company has completed the issuance of a total of US$3 billion of zero-coupon convertible senior bonds. The bonds will mature in 2029. The conversion price is a 55% premium to the market price, approximately US$672 per share. The offering net raised approximately $2.97 billion, and MicroStrategy plans to use most of the funds to purchase more Bitcoins and for other company operations. Not only that, MicroStrategy still has $15.3 billion of the $21 billion it received from previous stock financings that can be used to buy Bitcoin, and it plans to raise $42 billion to invest in Bitcoin over the next three years.
Among them, according to the latest data shared by @thepfund, since November 18, the list of MicroStrategy’s major debt holders (with the option to convert bonds into stocks) shows that Vanguard Group ranks first and BlackRock ranks second , many well-known financial institutions and investment companies such as Goldman Sachs, JPMorgan Chase and Deutsche Bank also appear on the list.
The strengthening of Bitcoin yields has driven the market's optimism about MicroStrategy's prospects. Data shows that MicroStrategy’s market capitalization has reached US$80.506 billion, a premium of nearly 2.5 times over the value of Bitcoin holdings. It once ranked among the top 100 market capitalization of U.S. listed companies. Judging from the stock price performance, the price of MSTR has climbed to US$397.28, which is approximately 14 times higher than the stock price when the company first purchased Bitcoin. It has increased by 497.8% this year alone, far exceeding the increase of Bitcoin in the same period. Of course, MSTR's transactions are also very active. Data from the Top 100 most active US stocks tracked by Tradingview shows that MSTR's trading volume yesterday (US time) reached US$39.9 billion, ranking second only to Nvidia's US$58.8 billion.
MicroStrategy shareholders also receive significant accretive effects. According to MicroStrategy founder Michael Saylor’s disclosure on the social platform a few days ago, MSTR’s financial operations achieved a 41.8% Bitcoin return, providing its shareholders with a net income of approximately 79,130 BTC. This equates to approximately 246 BTC per day, without the cost, energy consumption or capital expenditure typically associated with Bitcoin mining. According to the third quarter 13F filing tracked by Fintel, MSTR's institutional holders have increased to 1,040, totaling 102 million shares (currently worth $40.52 billion). Shareholders include Capital International, Vanguard Group, Citadel, Jane Street, Morgan Stanley Danli, Haina International Group and BlackRock, etc.
In this regard, CoinDesk analyst James Van Straten once analyzed that MicroStrategy shareholders are a unique group. Usually shareholders’ equity is diluted, which is considered a bad thing. However, MicroStrategy shareholders seem to be very happy that their equity is diluted because These shareholders know that MicroStrategy is buying Bitcoin, and this strategy is equivalent to increasing the value of their shares, which means that shareholder value also increases.
The high premium of stock prices has caused controversy, and the sustainability of leverage strategies has become the focus
Faced with the high premium on MicroStrategy shares, the market also began to diverge on the leverage strategy behind it.
Optimists believe that MicroStrategy has successfully integrated the rising potential of Bitcoin with the performance of the company's stock through leverage layout, creating huge room for value growth, especially in the context of the strong rise in Bitcoin prices. For example, Andrew Kang, a partner at Mechanism Capital, published an article on the We believe that the company's management has done an excellent job in using volatility to raise additional legal capital to purchase Bitcoin, and significantly raised the target price for MicroStrategy from US$290 to US$570.
"According to recent statistics, the average cost of Bitcoin on MicroStrategy is US$49,874, which means it is now close to 100% floating profit. This is a super thick safety cushion. MicroStrategy borrows OTC leverage and has no liquidation mechanism at all. Angry creditors can at most turn their bonds into MSTR stocks at a specified time, and then angrily smash them into the market. Even if MSTR is smashed to zero, it still does not need to be forced to sell these Bitcoins, because the distance is small. The earliest maturity date of the debt that needs to be repaid is actually February 2027. Not only that, because of Wei Ce’s convertible bonds, creditors are generally guaranteed to make no losses, so its interest is quite low.” Partner of Nothing Research. 0xTodd wrote.
In the view of dForce founder Yang Mindao, MicroStrategy is not just a triple arbitrage of stocks, bonds, and currencies. The key is to turn MSTR stock into a real Bitcoin in traditional finance. It can be said to be the pinnacle of "borrowing fakes to cultivate reality." As for when the flywheel stops spinning and when the music stops, the core lies in how long the high premium of stocks and single shares can be maintained. If the market trend breaks expectations, the supply of Bitcoin derivatives increases, and the stock/coin premium of the micro strategy shrinks to less than 1.2, this kind of financing will be difficult to sustain. He also pointed out that micro-strategies now have a 300% premium on Bitcoin, and the risk is extremely high for secondary market participants if they do not understand the variables. The growing volume means that the premium will only shrink rather than expand; the ability to continue financing is one of the variables that can turn the premium from virtual to real.
However, bears believe that MicroStrategy's current stock price premium has far exceeded the value of Bitcoin itself, which may quickly narrow or even amplify the downside risk to the stock price as market sentiment fluctuates.
For example, Citron believes that as Bitcoin investment becomes easier than ever (it’s currently possible to buy ETFs, COIN, HOOD, etc.), MSTR’s trading volume has become completely divorced from Bitcoin’s fundamentals. While Citron remains bullish on Bitcoin, it has hedged by opening a short position in MSTR. Even Michael Saylor must know that MSTR is now overheated.
Steno Research also noted in a recent report that “MicroStrategy’s recent stock split has had a diminishing effect, further reinforcing the belief that its premium is unlikely to be sustainable. The company’s premium relative to its Bitcoin reserves recently surged to nearly 300%m, This suggests that the company's valuation "differs significantly from direct calculations of its assets and business fundamentals." As regulators increasingly favor Bitcoin and cryptocurrencies, investors may choose to hold Bitcoin directly instead of MicroStrategy stock.
BitMEX Research believes that MicroStrategy’s price performance and growth model is a “Ponzi scheme” and is unreasonable. The stock price is trading at a huge premium to the value of its Bitcoin holdings. Part of the reason may be that some financial regulators have banned people from buying Bitcoin ETFs, but investors are so hungry for Bitcoin exposure that they are buying MSTR regardless of the premium, and MSTR has another "Income strategies" exist.
(The above content is excerpted and reprinted with the authorization of our partner PANews, original text link)
Statement: The article only represents the author's personal views and opinions, and does not represent the objective views and positions of the blockchain. All contents and opinions are for reference only and do not constitute investment advice. Investors should make their own decisions and transactions, and the author and Blockchain Client will not be held responsible for any direct or indirect losses caused by investors' transactions.
"MicroStrategy is bearish: Bitcoin holdings exceed $32.6 billion, can the leverage game continue?" This article was first published on (Block Guest).
