Author: Nancy, PANews
With its main business of business intelligence (BI) performing mediocrely while its side business of investing in Bitcoin is thriving, MicroStrategy is undoubtedly one of the big winners of this bull market. Thanks to the strong momentum of Bitcoin, MicroStrategy achieved huge profits and drove its stock price to soar after boldly betting on Bitcoin, and this 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 also raised market concerns, with well-known short-selling firm Citron publicly stating its short position. Can MicroStrategy's leverage game continue?
The value of Bitcoin holdings exceeds $32.6 billion, with the stock price surging 497% this year.
Since adopting a Bitcoin investment strategy in 2020, MicroStrategy has undoubtedly become a true whale, and now its Bitcoin reserves value has surpassed the cash and securities held by companies like IBM and Nike.
According to data from BitcoinTreasuries.com, as of November 22, MicroStrategy has purchased over 331,000 Bitcoins at an average price of approximately $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 approximately $99,000, MicroStrategy has realized about $16.2 billion in floating profits over the past four years.
Despite achieving substantial returns, MicroStrategy has not stopped increasing its Bitcoin investments, and behind its infinite money-printing method is its purchase of Bitcoin through issuing stocks and convertible bonds. According to MicroStrategy's latest announcement, the company has completed a $3 billion issuance 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. This issuance netted about $2.97 billion, and MicroStrategy plans to use most of the funds to purchase more Bitcoin and for other corporate operational purposes. Furthermore, of the $21 billion raised from previous stock financing, there is still $15.3 billion available for purchasing Bitcoin, with plans to raise $42 billion for Bitcoin investments over the next three years.
According to the latest data shared by @thepfund, since November 18, the list of major bondholders of MicroStrategy (who have the right to convert bonds into stocks) shows that Vanguard is 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 yields 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, once ranking among the top 100 publicly traded companies in the U.S. Moreover, in terms of stock price performance, MSTR's price has risen to $397.28, about 14 times the stock price when the company first purchased Bitcoin, having increased by 497.8% this year, far exceeding the rise of Bitcoin during the same period. Of course, MSTR's trading is also very active; according to Tradingview's tracking of the most active U.S. stocks Top 100, 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 a recent disclosure by MicroStrategy founder Michael Saylor on social media, MSTR's financial operations have achieved a 41.8% return on Bitcoin, providing shareholders with a net gain of about 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 Fintel's tracking of third-quarter 13F filings, the number of institutional holders of MSTR has increased to 1,040, totaling 102 million shares (currently valued at $40.52 billion), with shareholders including Capital International, Vanguard, Citadel, Jane Street, Morgan Stanley, Haina International Group, and BlackRock.
In this regard, CoinDesk analyst James Van Straten previously analyzed that MicroStrategy's shareholders are a unique group. Typically, dilution of shareholder equity is considered a bad thing, but shareholders of MicroStrategy seem very pleased that their equity is being diluted because they know that MicroStrategy is buying Bitcoin, and this strategy essentially increases the value per share, meaning that shareholder value also increases.
The high premium on the stock price has sparked controversy, and the sustainability of the leverage strategy has become the focus.
In the face of the high premium on MicroStrategy's stock, the market has begun to show divergence over the leverage strategy behind it.
Optimists believe that MicroStrategy has successfully linked the upward potential of Bitcoin with the performance of the company’s stock through leverage, creating a huge value growth space, especially in the context of a strong rise in Bitcoin prices. For example, Mechanism Capital partner Andrew Kang stated on platform X that MicroStrategy has been driven by Bitcoin, with premium rates continually reaching new highs, traditional finance cannot understand this, 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 by leveraging volatility, and has significantly raised MicroStrategy's target price from $290 to $570.
"According to recent statistics, the average cost of Bitcoin for MicroStrategy is $49,874, which means it is now close to a floating profit of 100%, providing a super thick safety cushion. MicroStrategy is borrowing over-the-counter leverage, and there is fundamentally no liquidation mechanism. Angry creditors can at most convert their bonds into MSTR stock at a designated time and then angrily dump them on the market. Even if MSTR drops to zero, it still does not need to be forced to sell these 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 are largely guaranteed to 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 a triple arbitrage of stocks, bonds, and cryptocurrencies; the key is turning the MSTR stock into a true Bitcoin in traditional finance, which can be seen as a top-tier strategy of "borrowing the false to repair the real." As for when the flywheel will stop turning and when the music will stop, the core lies in how long the high premium of stock and single stock net Bitcoin can be maintained. If market trends break expectations, and the supply of Bitcoin derivatives increases, the stock/Bitcoin premium of MicroStrategy shrinks to below 1.2, this type of financing will be hard to sustain. He also pointed out that MicroStrategy currently has a 300% premium on Bitcoin, and secondary market participants face extremely high risks if they do not understand the variables involved. The continuously growing scale means that the premium will only shrink rather than expand; the ability to sustain financing is one of the variables that can turn the premium from virtual to real.
However, bears believe that MicroStrategy's current stock price premium has far exceeded the value of Bitcoin itself, which may quickly narrow or even amplify the downside risk of the stock price as market sentiment fluctuates.
For example, Citron believes that with Bitcoin investments being easier than ever before (currently one can buy ETFs, COIN, and HOOD, etc.), MSTR's trading volume has completely decoupled from the fundamentals of Bitcoin. While Citron remains optimistic about Bitcoin, it has hedged by opening a short position 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, which further reinforces the belief that its premium is unlikely to be sustained. The premium of the company relative to its Bitcoin reserves recently soared to nearly 300%, indicating that the company's valuation 'has a significant discrepancy from the direct calculation of its assets and business fundamentals.' As regulatory agencies show increasing favor towards Bitcoin and cryptocurrencies, investors may choose to hold Bitcoin directly rather than MicroStrategy stock.
BitMEX Research believes that MicroStrategy's price performance and rise model is a "Ponzi scheme" and is not reasonable. The stock price is significantly premium compared to the value of its held Bitcoin, partly due to some financial regulators prohibiting people from buying Bitcoin ETFs, but investors are very eager for Bitcoin exposure, so they buy MSTR despite the premium, and there is a kind of "yield strategy" present in MSTR.
