TLDR:
- MicroStrategy’s stock (MSTR) is trading at a 270% premium to its Bitcoin holdings
- The company uses leverage to amplify its Bitcoin holdings
- MicroStrategy’s software business provides steady cash flow
- CEO Michael Saylor plans to transform the company into a leading Bitcoin bank
- MSTR stock price hit $205, up 10% in 24 hours, reaching its highest level since March 2020
MicroStrategy (MSTR), the business intelligence company known for its substantial Bitcoin holdings, has seen its stock price surge as it reveals plans to become a Bitcoin-focused financial institution. The company’s stock jumped 10% to $205 on Friday, reaching its highest level since March 2020.
MicroStrategy’s net asset value premium to its Bitcoin holdings has risen to about 270%, its highest in three years. This means that holding a share of MSTR provides investors a yield 2.7 times higher than holding Bitcoin directly.
The company’s strategy of using leverage to amplify its Bitcoin holdings is a key factor in this premium. MicroStrategy uses financial instruments such as at-the-market equity offerings and convertible senior notes to increase its Bitcoin holdings. As of October 14, the company held about $3.91 billion in long-term debt, with a market cap of $35 billion. This indicates that its assets are 1.1 times leveraged relative to its equity.
MicroStrategy’s software business, often overlooked, generated about $111 million in revenue in the second quarter. This steady cash flow allows the company to service its debt and continue its Bitcoin acquisition strategy without selling its holdings.
CEO Michael Saylor recently outlined his vision for MicroStrategy’s future in an interview with Bernstein. Saylor plans to transform the company into a leading Bitcoin bank, leveraging Bitcoin’s growth to potentially become a trillion-dollar company.
“The endgame is to be the leading Bitcoin bank, or merchant bank, or you could call it a Bitcoin finance company,”
Saylor stated. He anticipates an average annual return of approximately 29% on this investment strategy.
Saylor’s ambitious plan involves borrowing funds through various capital market instruments and using those funds to invest in Bitcoin.
He predicts that Bitcoin’s value will surge to millions of dollars per coin in the future, potentially propelling MicroStrategy’s valuation to $300-400 billion or even reaching the trillion-dollar mark.
Unlike traditional banks, MicroStrategy’s Bitcoin bank will not lend Bitcoin. Instead, it aims to create a comprehensive suite of Bitcoin-based financial products, including stocks, bonds, and other investment instruments.
MicroStrategy has been actively acquiring Bitcoin for the past four years, using various methods to fund its purchases, including leveraging debt and equity.
The company’s latest acquisition of 7,420 BTC has brought its total holdings to 252,220 BTC, valued at approximately $15 billion. This makes MicroStrategy the world’s largest corporate holder of Bitcoin, according to data from Bitcoin Treasuries.
The company’s Bitcoin strategy has significantly impacted its stock performance. Over the past four years, MicroStrategy’s stock has surged over 1,200%. As Bitcoin continues to gain value, MicroStrategy’s stock is expected to remain closely tied to the cryptocurrency’s performance.
MicroStrategy’s approach has inspired other firms, such as Metaplanet, a Japanese investment company that recently adopted Bitcoin and has accumulated around 748 BTC so far.
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