The stock rose more than ALL S&P 500 components in 2024 on just $116 million in quarterly revenue.
In fact, $MSTR has now grown almost TRIPLE as much as Nvidia YTD.
What does MicroStrategy do and is it a bubble?
Last week, $MSTR saw $136 BILLION in trading volume.
To put that into perspective, even GameStop, $GME, didn't have a week with volume anywhere near that high.
Things are going to get even crazier as we look ahead.
So what does MicroStrategy do?
To begin with, MicroStrategy's recent stock price increase has NOTHING to do with its underlying business.
Below is a graph showing MSTR's annual and quarterly revenue since 2010.
The underlying business has been in linear decline for a decade now.
So what does MicroStrategy do?
At a high level, the company has become a true proxy for the purchase of #Bitcoin.
The company issues debt securities and uses the proceeds to buy Bitcoins, which then drives up the price of Bitcoin.
The cycle then repeats itself.
Most recently, the company's CEO, Michael Saylor, announced a $3 BILLION convertible note offering.
And the craziest thing is that the tickets were offered with a 0% coupon.
Investors loaned money to MicroStrategy at ZERO percent interest.
The notes have an exercise price of $672.
In other words, the bonds are listed at a price 55% higher than the MSTR share price.
This means that investors in these bonds only get paid if MSTR exceeds $672.
At a high level this seems like a complete scam, but we have to compare this to the pricing of options on the stock.
With the convertible bond offering, investors are effectively purchasing a call option on $MSTR with a strike price of $672 and an expiration date of 2029.
The hard part is calculating the real value of the zero-coupon bond.
Assume a large coupon of 10% and the call option is valued at 38%.
Now let's look at the price of options on $MSTR.
The furthest possible expiration date for the $670 call options on $MSTR is January 2027, trading at around $230.
This represents a premium of approximately 55% for call options that expire 2.5 years EARLIER than convertible bonds.
This makes bonds look cheap.
However, the counter argument here is that everything is overvalued and options are even more so.
The implied volatility of these call options which are at 782 DAYS is 107%.
It goes without saying that there is no "cheap" way to play this stock through options.
Now let's move on to the most important question: why buy MicroStrategy if you want exposure to Bitcoin rather than Bitcoin itself?
Saylor answered this question on X-Space and said, “People who buy the bonds can’t buy Bitcoin directly.”
He says it's investors like 401Ks who can't buy Bitcoin.
Many claim that by purchasing $MSTR you are actually paying a “premium” to buy Bitcoin.
Saylor says that's like saying oil companies should only trade based on their oil reserves.
Just like oil needs to be refined into gasoline, he says $MSTR does the same thing for Bitcoin.
In summary, MicroStrategy's strategy is based on cheap debt offerings:
1. Borrow money through 0% convertible bonds
2. Buy Bitcoin and drive up the price
3. Sell new shares at a premium and buy more Bitcoin
4. Repeat.
How long can this cycle last? Bulls will say that Saylor has transformed the business world and that all companies should start buying #Bitcoin.
Bears will say this is a classic Ponzi scheme with an inevitable collapse when capital dries up.
Regardless, $MSTR is now impacting the entire market.
We've been trading #Bitcoin, stocks, and commodities all year.
As volatility increases and Bitcoin's impact on the market grows, we see more and more opportunities to trade both sides of it.
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On Thursday alone, $MSTR recorded a whopping $50 BILLION in trading volume.
To put that into perspective, the Bitcoin ETF $IBIT only had $5 billion in volume that day.
It's truly amazing to watch and negotiate.
Follow me @M-FUTURIST ALIAS YACOUBA DIARRA for real-time analysis as the situation evolves.
