Author: Jack Inabinet, Bankless; Translated by: Bai Shui, Jinse Finance
Michael Saylor's MicroStrategy (MSTR) began accumulating BTC in 2020 and has been on an unstoppable trajectory, transforming the software company into one of the best-performing equity investment firms over the past two bull market cycles.
Despite massive losses in each quarter of 2024, MSTR's performance has still easily outpaced BTC, with the price doubling parabolically since September and rising another 200% year to date!
At MicroStrategy's recent earnings conference on October 30, company executives unveiled their '21/21 Plan,' a strategic initiative aimed at raising $42 billion in capital (equivalent to 80% of MSTR's market cap at the time of analysis) on a 50/50 basis. The planned combination of stock sales and bond issuance will become the largest secondary stock offering in U.S. market history.
Today, we will decode Michael Saylor's infinite money-making machine and explore how MicroStrategy intends to become a trillion-dollar company.
What is Saylor creating?
In August 2020, MicroStrategy announced a $250 million purchase of 21,454 BTC, becoming the first publicly traded company to implement a BTC treasury strategy, with an initial investment return approaching 500% over a 4-year lifespan.
As of September 2024, MicroStrategy holds 252,220 Bitcoins.
Although MicroStrategy has maintained its status as a BTC giant among direct corporate holders, the launch of the spot BTC ETF in January 2024 has reshaped the largest holder landscape, with BlackRock replacing MicroStrategy as the fourth-largest entity holding BTC, behind Binance, Sabase, and Coinbase.
While the market initially valued MicroStrategy at five times the value of its BTC assets, as holders gradually realized they would be eternally diluted to fund additional BTC purchases, and by the end of 2021, with the bear market stagnating, this premium began to disappear, leaving MSTR trading below its net asset value (NAV).
Unlike when MicroStrategy first began accumulating BTC in 2020, investors no longer need to exit traditional markets to gain exposure to crypto assets, yet even in the ETF era, MSTR stock has continued to trade at a sustained premium since February 2024.
Compared to a simple spot ETF that tracks BTC performance (minus management fees), MicroStrategy provides its shareholders with a BTC accumulation strategy tool that can increase the number of tokens per share.
When the trading price of MSTR stock is above the BTC it holds, MicroStrategy can conveniently raise funds through two avenues: at-the-market stock offerings and convertible bond sales. The at-the-market stock offering authorization allows MicroStrategy to issue and sell new MSTR shares to raise cash, while convertible bond sales enable MicroStrategy to borrow money on extremely favorable terms in exchange for redeemable debt obligations or a certain amount of MSTR shares in the future.
In its Q2 2024 earnings report, MicroStrategy introduced 'BTC Yield' as a key investor performance metric to highlight the quarter-over-quarter growth in BTC held per share.
Despite the ongoing bear market, MicroStrategy unorthodoxly obtained a $205 million BTC-backed term loan from Silvergate in March 2022, but crypto industry experts often liken the company to a money printer, as its executives seem to raise unlimited cash to purchase BTC through stock dilution during market booms.
In a recent interview with analysts from sell-side research firm Bernstein, Michael Saylor revealed his company's ultimate goal: to transform into a mature Bitcoin financial services provider.
When shareholders buy MSTR, they are not only purchasing BTC but also the management's ability to effectively utilize capital markets and the balance sheet to generate more returns.
Investment Considerations
MSTR's performance in 2024 has undoubtedly outperformed BTC, but historically, it has also exhibited higher volatility, experiencing more severe downward fluctuations while rebounding significantly on the upside. Speculators seeking leveraged BTC exposure would be better off directly utilizing the underlying asset.
While cleverly utilizing public capital markets allows MSTR shareholders to accumulate more BTC, MicroStrategy's ability depends on investors' willingness to continuously purchase shares at a premium.
As shown in 2022, MSTR stock may trade at a price below its net asset value for the long term. If convertible bonds mature while the net asset value remains at a discount, MicroStrategy will be forced to sell a surprisingly large amount of stock to dilute investors' equity or sell the BTC it holds to redeem the outstanding bonds.
The FASB rule changes set to take effect this December will allow digital assets to be reported at their fair market value. Although MicroStrategy has announced net profit losses for three consecutive quarters in 2024, adopting these new accounting standards will have a positive impact on the company's finances, making MSTR a potential candidate for the S&P 500 index. Adding it to that index or others like the Nasdaq 100 will unleash passive price-agnostic liquidity that can be sold to accumulate more BTC!
Compared to investing in non-productive spot BTC, MicroStrategy stock has the capacity to accumulate additional tokens, and unlike companies in the highly competitive cryptocurrency mining sector, MicroStrategy has a significant competitive advantage due to its vast BTC moat. As long as there is a speculative desire for Bitcoin, investors can rest assured knowing that there may be someone willing to purchase shares at a premium or lend cash on favorable terms.
