Written by: Zhang Yaqi, Wall Street Journal
MicroStrategy (MSTR) has significantly increased its Bitcoin holdings for the ninth consecutive week, and the company continues to buy more as its stock price declines. What is the mystery behind this 'puzzle operation'?
On the 6th, former head of Bank of America's Global Equity Capital Markets Craig Coben pointed out in a column for the Financial Times in the UK that MSTR's strategy seems to have a structural problem: the company tends to buy more as Bitcoin prices rise. This strategy faces significant risks. If Bitcoin falls, MSTR's net asset premium shrinks, stock prices drop, and the $7.2 billion convertible bonds may face the risk of redemption at maturity rather than conversion into new shares.
Currently, Bitcoin prices are around $100,000, but MicroStrategy's stock price has declined. Since the peak of $552 on November 21, the company's stock price has fallen by 40%.
Consequently, the company's premium over net asset value has dropped from a high of 3.8 times to 1.9 times. Notably, MSTR executives have also been selling off a large amount of company stock, cashing out $570 million just in 2024.
Meanwhile, MSTR has accelerated its pace of Bitcoin purchases. The $21 billion 'par' stock issuance plan announced by the company last month was originally designed to be a three-year term, but two-thirds of it has been completed in just two months. According to estimates from JPMorgan analysts, MSTR accounted for an astonishing 28% of the inflow of funds into the cryptocurrency market in 2024.
MSTR is selling company stock while heavily buying Bitcoin. Analysts believe that by selling stocks at 2-3 times the net asset value, MSTR is actually buying Bitcoin at a significant discount.
Rushing to grab the premium!
MicroStrategy seems to be undertaking an urgent action to expand its financing scale. Last Friday, the company announced plans to issue up to $2 billion in perpetual preferred stock this quarter to purchase more Bitcoin. Just over a week ago, MSTR also sought shareholder approval to increase the number of shares from 330 million to 10.33 billion, an increase of over 3000%.
Coben believes that this behavioral pattern seems to suggest that the company's leadership recognizes that the current net asset premium may not be permanent, and they are seizing this opportunistic moment.
The behavior of MSTR's senior management has also drawn attention. Company chairman Michael Saylor publicly condemned diversification in investments and even suggested that investors mortgage properties to buy Bitcoin. However, other executives in the company have been selling off a large amount of company stock, cashing out $570 million just in 2024.
Coben pointed out that MSTR tends to buy more as the price of Bitcoin rises. During the cryptocurrency winter of 2022-2023, when Bitcoin prices hovered around $10,000 to $20,000, MSTR's buying pace noticeably slowed. However, with the surge in Bitcoin prices, the company's buying frenzy followed suit.
As long as the price of Bitcoin continues to rise, the company's net asset premium can be maintained, which is key to the entire strategy.
However, this strategy faces significant risks. If Bitcoin falls, the net asset premium shrinks, and stock prices drop, the $7.2 billion convertible bonds may face the risk of redemption at maturity rather than conversion into new shares. Considering that MSTR's software business is operating at a loss and Bitcoin does not generate cash flow, this will pose severe challenges for the company.
Coben believes that MSTR's substantial stock sell-off is a way to avoid this risk:
By selling stocks at 2-3 times the net asset value, MSTR is actually buying Bitcoin at a significant discount.
