Author: Nancy, PANews
With its main business in business intelligence (BI) performing mediocre, its side business in Bitcoin is thriving, making MicroStrategy undoubtedly one of the big winners of this bull market. Thanks to the strong momentum of Bitcoin, MicroStrategy achieved huge profits and propelled its stock price to soar after making bold bets on Bitcoin. This effortless winning strategy is attracting more and more imitators trying to replicate its success.
However, while MicroStrategy achieves capital appreciation through the super strong returns of Bitcoin, the high premium of its stock price has raised market concerns. The well-known short-selling firm Citron has publicly stated its short position. Can MicroStrategy's leverage game continue to play out?
The value of Bitcoin holdings exceeds $32.6 billion, and the stock price has surged 497% this year.
Since adopting a Bitcoin investment strategy in 2020, MicroStrategy has undeniably become a giant whale, and its Bitcoin reserves now exceed the cash and securities held by companies such as IBM and Nike.
According to data from BitcoinTreasuries.com, as of November 22, MicroStrategy purchased over 331,000 Bitcoins at an average price of about $49,874, accounting for nearly 1.6% of the total Bitcoin supply, with a current value exceeding $32.69 billion. If calculated at the current Bitcoin price of about $99,000, MicroStrategy has realized approximately $16.2 billion in floating profits over the past four years.
Despite achieving substantial returns, MicroStrategy has not stopped increasing its Bitcoin positions, and its unlimited money-printing strategy is backed by issuing stocks and convertible bonds to purchase Bitcoin. According to MicroStrategy's latest announcement, the company has completed a $3 billion offering of zero-coupon convertible senior bonds, which will mature in 2029, with a conversion price at a 55% premium to the market price, approximately $672 per share. The net fundraising from this issuance is about $2.97 billion, and MicroStrategy plans to use most of the funds to purchase more Bitcoin and for other operational purposes. Furthermore, among the $21 billion raised from previous stock financing, $15.3 billion remains available for buying Bitcoin, with plans to raise $42 billion for Bitcoin investment over the next three years.
Among them, according to the latest data shared by @thepfund, since November 18, MicroStrategy's main bondholders (who have the right to convert bonds into stocks) include Vanguard at the top, followed by BlackRock, with several well-known financial institutions and investment companies such as Goldman Sachs, JPMorgan, and Deutsche Bank also appearing on the list.
The strengthening of Bitcoin's yield has also boosted market sentiment towards MicroStrategy's prospects. Data shows that MicroStrategy's market capitalization has reached $80.506 billion, nearly 2.5 times the value of its Bitcoin holdings, and at one point it ranked among the top 100 U.S. listed companies by market capitalization. Furthermore, in terms of stock price performance, MSTR's price has climbed to $397.28, about 14 times the price when the company first purchased Bitcoin, having risen 497.8% this year, far exceeding Bitcoin's increase during the same period. Of course, MSTR's trading is also very active, with Tradingview tracking the top 100 most active U.S. stocks indicating that MSTR's trading volume reached $39.9 billion yesterday (U.S. time), second only to Nvidia's $58.8 billion.
MicroStrategy shareholders have also experienced significant appreciation effects. According to MicroStrategy founder Michael Saylor's recent disclosures on social media, MSTR's financial operations have achieved a 41.8% return on Bitcoin, providing its shareholders with a net gain of approximately 79,130 BTC. This is equivalent to about 246 BTC per day, without the costs, energy consumption, or capital expenditures usually associated with Bitcoin mining. According to third-quarter 13F filings tracked by Fintel, the number of institutional holders of MSTR has increased to 1,040, totaling 102 million shares (current value $40.52 billion), with shareholders including Capital International, Vanguard, Citadel, Jane Street, Morgan Stanley, HNA International Group, and BlackRock.
In this regard, CoinDesk analyst James Van Straten pointed out that MicroStrategy's shareholders are a unique group. Typically, dilution of shareholder equity is considered a bad thing, but MicroStrategy shareholders seem to be very happy with their equity being diluted because they know MicroStrategy is buying Bitcoin. This strategy effectively increases the value per share, which means shareholder value also increases.
High stock price premiums provoke controversy, sustainability of leverage strategy becomes the focus.
In the face of the high premium of MicroStrategy stock, the market has started to show divergence regarding the leverage strategy behind it.
Optimists believe that MicroStrategy has successfully linked the upside potential of Bitcoin with the performance of its stock through leveraged positioning, creating huge value growth potential, especially against the backdrop of strong Bitcoin price increases. For example, Andrew Kang, a partner at Mechanism Capital, stated on X platform that MicroStrategy is pushed up by Bitcoin, with premium rates constantly reaching new highs, which traditional finance cannot comprehend, and there is a certain degree of sluggishness towards MicroStrategy's model; BTIG analyst Andrew Harte praised MicroStrategy's plan, believing that the company's management has done an excellent job of raising additional fiat capital to purchase Bitcoin through volatility, and significantly raised MicroStrategy's target price from $290 to $570.
"According to recent statistics, MicroStrategy's average cost for Bitcoin is $49,874, which means it is now close to a floating profit of 100%, which is a super thick safety cushion. MicroStrategy is borrowing through off-exchange leverage, so there is no liquidation mechanism at all. Angry creditors can at most convert their bonds to MSTR stock at a designated time and then angrily dump it on the market. Even if MSTR is driven down to zero, it still does not need to be forced to sell those Bitcoins, because the earliest debt that MicroStrategy borrowed does not need to be repaid until February 2027. Moreover, due to MicroStrategy's convertible bonds, creditors will generally make a profit, so its interest is relatively low," said 0xTodd, a partner at Nothing Research.
In the view of dForce founder Yang Mindao, MicroStrategy is not just about arbitraging in stocks, bonds, and cryptocurrencies; the key is to transform MSTR stock into a true Bitcoin in traditional finance, which can be considered a top-notch 'borrowing to create the real thing' strategy. As for when the flywheel will stop turning and when the music will stop, the core lies in how long the high premium of the stock and single-stock net currency can be maintained. If market trends break expectations, and the supply of Bitcoin derivatives increases, the stock/coin premium of MicroStrategy could shrink below 1.2, making this financing difficult to sustain. He also pointed out that MicroStrategy's premium on Bitcoin is now 300%, and for secondary market participants, if they do not understand the underlying variables, the risk is extremely high. The continuously growing volume means that the premium will only shrink rather than expand; the ability to sustain financing is one of the variables that will turn the premium from virtual to real.
However, bears believe that MicroStrategy's current stock price premium far exceeds the value of Bitcoin itself and may quickly narrow or even amplify the downside risk of the stock price with fluctuations in market sentiment.
For instance, Citron believes that as investing in Bitcoin is easier than ever (currently one can buy ETFs, COIN, HOOD, etc.), MSTR's trading volume has completely detached from Bitcoin's fundamentals. Although Citron remains optimistic about Bitcoin, it has hedged by opening short positions on MSTR. Even Michael Saylor must know that MSTR is now overheated.
Steno Research also pointed out in a recent report that 'the effect of MicroStrategy's recent stock split is gradually diminishing, further reinforcing the belief that its premium is unlikely to persist. The company's premium relative to its Bitcoin reserves recently soared to nearly 300%, indicating a significant discrepancy between the company's valuation and the direct calculations of its assets and business fundamentals.' As regulatory agencies become more favorable towards Bitcoin and cryptocurrencies, investors may choose to directly hold Bitcoin instead of MicroStrategy stock.
BitMEX Research believes that MicroStrategy's price performance and rising model is a 'Ponzi scheme' and is unreasonable. The stock price has a huge premium compared to the value of its held Bitcoin, partly because some financial regulators prohibit people from buying Bitcoin ETFs, but investors are very eager for Bitcoin exposure, so they buy MSTR regardless of the premium, and MSTR also has a 'yield strategy' in place.
