Author: Jack Inabinet, Bankless; Translated by: Bai Shui, Golden Finance
Michael Saylor's MicroStrategy (MSTR) has been accumulating BTC since 2020, transforming the software company into the best-performing equity investment company during the last two bull market cycles.
Despite significant losses projected for each quarter in 2024, MSTR's performance still comfortably outstrips BTC, with prices doubling parabolically since September and up 200% year-to-date!
At MicroStrategy's recent earnings call on October 30, company executives unveiled their '21/21 Plan', a strategic initiative aimed at raising $42 billion in capital at a 50/50 ratio (equivalent to 80% of MSTR's market cap at the time of analysis). The planned combination of stock sales and bond issuance became the largest secondary stock offering in the history of the U.S. stock market.
Today, we will decrypt Michael Saylor's infinite money-making machine and explore how MicroStrategy plans to become a trillion-dollar company.
What is Saylor creating?
MicroStrategy announced in August 2020 that it spent $250 million to purchase 21,454 BTC, becoming the first publicly traded company to implement a BTC capital strategy, with this initial investment yielding nearly 500% returns over its four-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 a spot BTC ETF in January 2024 reshaped the largest holder landscape, with BlackRock overtaking MicroStrategy as the fourth-largest BTC holder entity, trailing only Binance, Sabase, and Coinbase.
Although the market initially valued Microstrategy at five times the value of its BTC assets, as holders gradually realized they would be perpetually diluted to fund additional BTC purchases, by the end of 2021, as the bear market languished, this premium began to fade, and MSTR found its trading price below its net asset value (NAV).
Unlike in 2020 when MicroStrategy first began accumulating BTC, investors no longer need to exit the traditional market to gain exposure to crypto assets. Even in the era of ETFs, 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 MSTR stock trades above its held BTC, MicroStrategy can easily raise funds through two avenues: parity stock issuance and convertible bond sales. The authorization for parity stock issuance allows MicroStrategy to issue and sell new MSTR shares to the market to raise cash, while convertible bond sales enable MicroStrategy to borrow money under extremely favorable conditions in exchange for redeemable debt obligations in cash 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 for the first time, emphasizing the quarter-over-quarter growth in BTC held per share.
Despite the ongoing bear market, MicroStrategy took an unorthodox $205 million BTC collateralized term loan from Silvergate in March 2022, but industry experts often liken the company to a money printing machine, as its executives seem to raise unlimited cash to buy BTC through stock dilution during market booms.
In a recent interview with analysts from the sell-side research firm Bernstein, Michael Saylor revealed his company's ultimate goal: to transform into a mature Bitcoin financial services provider.
When shareholders purchase MSTR, they are not only buying 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 undoubtedly outperformed BTC, but historically, it has also shown higher volatility, experiencing more severe downward fluctuations while making significant upward rebounds. Speculators seeking leveraged BTC exposure are better off directly utilizing the underlying asset.
While astutely leveraging public capital markets allows MSTR shareholders to accumulate more BTC, Microstrategy's ability depends on investors' ongoing willingness to purchase stock at a premium.
As shown in 2022, MSTR stock may trade long-term at a price below its net asset value. If convertible bonds mature while the net asset value continues to trade at a discount, Microstrategy will be forced to sell an unexpectedly large amount of stock to dilute investors' equity or sell BTC held to redeem outstanding bonds.
The FASB rule change 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 would 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 ability to accumulate additional tokens, and unlike companies in the extremely competitive cryptocurrency mining sector, Microstrategy has a significant differentiation advantage due to its vast BTC moat. As long as there is a desire to speculate on Bitcoin, investors can rest assured knowing that someone may be willing to purchase the stock at a premium or lend cash under favorable conditions.
