While MicroStrategy has achieved capital appreciation through the super strong returns from bitcoin, the high premium on its stock has raised market concerns, with well-known short-selling firm Citron publicly stating its short position. Can MicroStrategy's leverage game continue?
Article author: Nancy, PANews
Source: PANews
With its core business in business intelligence (BI) performing mediocrely, MicroStrategy has undoubtedly become one of the big winners in this bull market by successfully investing in bitcoin. Thanks to the strong momentum of bitcoin, MicroStrategy achieved huge profits after boldly betting on bitcoin, driving its stock price to soar. This 'lying win' strategy is attracting more and more imitators trying to replicate its success.
However, while MicroStrategy has achieved capital appreciation through the super strong returns from bitcoin, the high premium on its stock has raised market concerns, with well-known short-selling firm Citron publicly stating its short position. Can MicroStrategy's leverage game continue?
Bitcoin holdings are valued at over $32.6 billion, and the stock price has surged 497% this year.
Since adopting a bitcoin investment strategy in 2020, MicroStrategy has become a true whale, now with its bitcoin reserves valued higher than the cash and securities held by companies like IBM and Nike.
According to data from BitcoinTreasuries.com, as of November 22, MicroStrategy 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 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 infinite money printing method is based on purchasing bitcoin through issuing stocks and convertible bonds. According to MicroStrategy's latest announcement, the company has completed the issuance of $3 billion in zero-interest 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 company operational purposes. Moreover, of the $21 billion raised from previous stock financing, $15.3 billion is still available for purchasing bitcoin, with plans to raise $42 billion for bitcoin investment over the next three years.
According to the latest data shared by @thepfund, as of November 18, the list of MicroStrategy's main bondholders (who have the right to convert bonds into shares) 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 optimism about 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 ranked among the top 100 U.S. publicly traded companies by market capitalization. Furthermore, in terms of stock performance, MSTR's price has risen to $397.28, about 14 times the price when the company first bought bitcoin, having increased by 497.8% this year alone, far exceeding the same period's bitcoin growth. Of course, MSTR's trading is also very active; the data of the top 100 most actively traded U.S. stocks tracked by Tradingview shows 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 value appreciation. According to Michael Saylor, the founder of MicroStrategy, who disclosed on social media a few days ago, MSTR's financial operations have achieved a 41.8% bitcoin yield, providing its shareholders with a net gain of about 79,130 BTC. This is equivalent to approximately 246 BTC per day, and without the costs, energy consumption, or capital expenditures typically associated with bitcoin mining. According to the third-quarter 13F filings tracked by Fintel, MSTR's institutional holders have 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, the dilution of shareholder equity is considered a bad thing, but shareholders of MicroStrategy seem very pleased with their equity dilution because they know MicroStrategy is buying bitcoin, which effectively increases the value per share, meaning shareholder value also increases.
High stock price premiums are controversial, and the sustainability of the leverage strategy has become a focal point.
Faced with the high premium on MicroStrategy's stock, the market has begun to show divisions regarding the leverage strategy behind it.
Optimists believe that MicroStrategy has successfully combined the rising potential of bitcoin with the performance of its stock through leverage, creating significant value growth potential, especially against the backdrop of strong bitcoin price increases. For instance, Andrew Kang, a partner at Mechanism Capital, stated on platform X that MicroStrategy has been pushed up by bitcoin, with the premium rate continually hitting new highs, which traditional finance cannot comprehend and shows a 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 legal capital to purchase bitcoin by leveraging volatility, and raised the target price for MicroStrategy from $290 to $570.
"According to recent statistics, MicroStrategy's average cost for bitcoin is $49,874, which means it is now close to floating profits of 100%, providing a very thick safety cushion. MicroStrategy borrowed on the over-the-counter leverage without any liquidation mechanism. Angry creditors can at most convert their bonds into MSTR shares at a specified time and then angrily throw them into the market. Even if MSTR is crushed to zero, it still does not need to be forced to sell these bitcoins because the earliest repayment date for the debt MicroStrategy borrowed is surprisingly in February 2027. Moreover, due to MicroStrategy's convertible bonds, creditors are generally guaranteed a profit, so its interest rate is quite low," said 0xTodd, a partner at Nothing Research.
In the view of dForce founder Yang Mindao, MicroStrategy is not just about triple arbitrage of stocks, bonds, and currencies, but the key is to turn MSTR stock into a true bitcoin in traditional finance, making it a 'borrowed facade for genuine achievement.' As for when the flywheel will stop turning, when the music will stop, the core lies in how long the high premium of the stock and single share net bitcoin can be sustained. If market trends break expectations, and the supply of bitcoin derivatives increases, the stock/currency premium of MicroStrategy will shrink to below 1.2, making such financing difficult to sustain. He also pointed out that MicroStrategy currently has a 300% premium on bitcoin, and secondary market participants face extreme risks if they do not understand the variables involved. The continuously growing volume indicates that the premium will only shrink rather than expand; the ability to sustain financing is one of the variables that can transform the premium from illusory to real.
However, bears believe that MicroStrategy's current stock price premium far exceeds the value of bitcoin itself, which may quickly narrow or even amplify the downside risk of the stock price with market sentiment fluctuations.
For example, Citron believes that as bitcoin investments become easier than ever (currently you can buy ETFs, COIN, and HOOD, etc.), MSTR's trading volume has completely detached from the fundamentals of bitcoin. Although Citron remains optimistic about bitcoin, it has hedged by opening a short position in MSTR. Even Michael Saylor must know that MSTR is now overheated.
Steno Research recently pointed out in a 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 disparity between the company's valuation and the direct calculation of its assets and business fundamentals. As regulatory agencies increasingly favor bitcoin and cryptocurrencies, investors may choose to hold bitcoin directly rather than MicroStrategy stock.
BitMEX Research believes that MicroStrategy's price performance and rising model is a 'Ponzi scheme' and is not reasonable. The stock price has a huge premium relative to its bitcoin holdings, partly because some financial regulators prohibit people from purchasing bitcoin ETFs, but investors are very eager for bitcoin exposure, so they are buying MSTR regardless of the premium, and MSTR also has a 'yield strategy' in place.
