Further analysis on MicroStrategy/MSTR
I looked at MSTR's financial report, and this company's cash flow is very limited, with negative profits, so it is not calculated as a valuation of a normally operating company. Of course, there will be some, but it should be negligible.
Just treat MSTR as a fund that raises funds by borrowing or issuing stocks to purchase BTC.
Using MSTR's market value / (BTC value - net debt), the premium is 203%, meaning its market value is approximately twice its actual net assets - first, we must marvel at the madness of the market; it truly seems to have no upper limit.
In fact, similar scenarios played out in the last round, where GBTC's premium consistently remained positive between 20-21, reaching over 30% at its peak. Those who participated in the last round may remember that Three Arrows, Voyager, and others were engaging in this arbitrage, and the result was, of course, a failure.
Question 1: What kind of people can only buy MSTR and not BTC or ETFs? ChatGPT provided several answers, which I will put at the end of this article for reference. In short, some institutions may have to buy overvalued MSTR stock. Of course, there is also speculation, without a doubt.
Question 2: What does this mean?
When the prices of the two channels differ, there are two explanations: first, the lower price is too low, and second, the higher price is too high. I estimate that both are true. One is that MSTR should be in an overvalued state, so I do not recommend investing; of course, I also do not recommend shorting. I remember that in March, an institution shorted, and now they probably lost their pants.
From another perspective, if MSTR's pricing is correct, it means Bitcoin needs to reach $290,000... This is certainly too good to be true. So ultimately, Bitcoin still has upward potential.
Specifically, MSTR can continuously issue new shares to buy BTC. In practice, MSTR has gone through multiple rounds of issuance (see Figure 3), and it also adopts a convertible bond model, which is quite similar to issuing stocks. For example, on November 18, MicroStrategy announced a $1.75 billion convertible senior note.
MSTR's market value is 4.6% of BTC's market value, while its BTC holding is directly 1.7%, leaving a difference of 2.9%, which indicates it has a 2.9% potential buying power; applying at least a 1% discount means this is a positive signal for BTC prices during a bull market.
Question 3: Will MSTR bring risks to the cryptocurrency market?
There is no free lunch; MSTR can be understood as a leveraged BTC fund that increases the buying pressure on BTC, so the time to deleverage in a bear market will inevitably have a negative impact on the coin price.
Specifically, during a bear market, if MSTR's stock price drops, it may fall below BTC holding. However, this seems to pose no risk to the market because it merely indicates that it cannot buy coins through the previously issued new shares.
Another risk is that when the price of cryptocurrency drops to a certain level, MSTR may be unable to repay its debts, leading to the necessity of selling BTC. This depends on its specific debt structure; for example, the convertible bonds mentioned earlier do not require selling coins to repay debts. Overall, its net debt is $3 billion, currently holding 330,000 coins worth $32 billion, with a leverage ratio of about 10%, seemingly far from liquidation.
Question 4: What are the similarities and differences with Luna?
As mentioned earlier, MSTR is like Luna. We can draw the following analogy:
MSTR stock = Luna
MSTR debt = UST
So the overall structure is quite similar. However, its risk is an order of magnitude smaller than Luna; one reason is that UST is a high-interest debt (20% APY), while MSTR's debt interest rate does not exceed 2%. The second reason is that UST must maintain its peg, which adds an extra risk. Lastly, Luna had very high leverage at its peak, while MSTR's leverage is very low.
So what?
The conclusion is: MSTR stock is currently at a high point, and it is more suitable to buy when premiums drop in a bear market. Moreover, this premium represents the upward potential of Bitcoin's price.
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1. Regulatory restrictions
Pension funds and insurance companies
These institutions are usually subject to strict regulations that require investments in products that meet certain risk levels and asset categories. Directly holding Bitcoin or Bitcoin ETFs may be viewed as too high-risk or non-compliant with regulatory standards, but holding publicly traded stocks (like MSTR) usually meets investment criteria.
Public fund restrictions
Some public funds (especially traditional equity funds) may be prohibited from holding cryptocurrencies or cryptocurrency derivatives (like Bitcoin ETFs). Investing in MSTR stock can circumvent this restriction, as it belongs to ordinary tech company stocks.
2. Internal policy or compliance issues
Investment strategy restrictions
Some institutions' internal investment policies restrict their investments in 'non-traditional assets' (such as cryptocurrencies), but MSTR, as a publicly listed company, has its stock conforming to the definition of traditional stock assets.
Risk management considerations
Some institutions may believe that the liquidity and volatility risks of Bitcoin ETFs are too high and prefer to choose indirect exposure, such as through MSTR stock.
3. Regional or industry restrictions
Regional policies
In certain regions (such as some Asian countries), governments may impose strict restrictions on cryptocurrency investments, prohibiting institutional investors from directly holding Bitcoin or related derivatives. However, investing in U.S. stocks usually does not face these restrictions.
Banks and non-profit organizations
Banks or non-profit organizations may sometimes face additional constraints that prevent them from directly investing in cryptocurrency-related assets.
4. Preference for indirect exposure
Transparency of the balance sheet
Investing in MSTR stock not only provides exposure to Bitcoin but also allows institutional investors to analyze its other business balance sheets, while Bitcoin ETFs only offer pure cryptocurrency risk.
Tax and compliance convenience
Holding MSTR stock may be simpler in terms of tax reporting and compliance management compared to holding Bitcoin ETFs.
