There’s something strange going on at MicroStrategy.
The company has raised capital through a combination of equity and convertible debt, and has amassed more than 2% of all Bitcoin in existence. This strategy has turned a run-of-the-mill business software company into something like a Bitcoin ETF, even though it trades at a frothy premium to its net asset value. Since shifting its focus to Bitcoin in August 2020, the stock price has increased more than 20 times.
But in recent months, some strange contradictions in this story have become apparent. While Bitcoin maintains its stratospheric altitude at around $100,000 per coin, MicroStrategy’s stock price has fallen to an intraday peak of $550 on November 21st (market capitalization at the time was $124 billion). (meaning the dollar) fell by 40 percent. Even after being included in the NASDAQ 100 index, the stock price did not increase. Meanwhile, the premium to net asset value fell from a high of 3.8x to 1.9x. This stock price drop comes even as the company continues to acquire more Bitcoin.
More important is the frenetic execution of the company’s $21 billion “at-the-money” stock offering, announced with much fanfare on Halloween. Billed as a three-year marathon, the event was run at the pace of a sprinter while taking amphetamines, and more than two-thirds of the allotment was used up in just two months. This is strange behavior for a strategy ostensibly designed for disciplined incremental purchases. There is no push buying. Even as the price of Bitcoin remains steady near all-time highs, company chairman Michael Saylor has been increasing his Bitcoin purchases at breakneck speed.
According to JPMorgan analysts, MicroStrategy accounted for an astonishing 28% of capital inflows into the crypto market in 2024.
There’s no time to waste. Last Friday, the company announced plans to raise up to $2 billion in perpetual preferred stock this quarter to buy more Bitcoin, but the exact timing and terms have not yet been announced. This comes just over a week after MicroStrategy announced it was seeking shareholder approval to increase its stock count by more than 3,000 percent, from 330 million to 10.33 billion.
The timing gives the impression of opportunism, as if the company’s management recognized that the current NAV premium (the economic equivalent of finding money growing on trees) may not be permanent. It seems like it’s there. There is an air of extreme impatience, urgency (or desperation) in the air to lock in the discrepancy between MicroStrategy’s stock price and the Bitcoin price before it can be arbitraged away.
Further complicating the conspiracy are the actions of MicroStrategy’s senior executives. Saylor has publicly denounced diversification and urged investors to focus their portfolios on Bitcoin with almost religious beliefs. He even suggested that people mortgage their homes to buy Bitcoin.
But his lieutenants appear to have missed the sermon and cashed out large sums of their stock holdings in exchange for fiat currency, which their bosses routinely ridicule. In November, there was a spate of insider selling, with executives converting their company stock into good old Yankee dollars. MicroStrategy stock may be a proxy for Bitcoin and ostensibly a unique store of value, but with insider sales totaling $570 million in 2024, management is reluctant to own the stock. I haven’t.
That’s not the only contradiction. In line with its strategy, MicroStrategy appears to be structurally inclined to buy Bitcoin at increasingly higher prices. During the crypto winter of 2022-2023, when Bitcoin was all the rage in the teens and 20s, the company’s purchases slowed to maximum speed as its stock traded around NAV. But as Bitcoin prices soared, so did MicroStrategy’s buying frenzy. This business model seems less like a bet on Bitcoin’s inherent value and more like a bet on the enthusiasm it evokes.
The premium to NAV will remain as long as Bitcoin continues to rise, and that premium is the glue that holds the entire strategy together. By selling shares at 2-3x NAV, MicroStrategy is effectively buying Bitcoin at a deep discount. Without the NAV premium, stock prices would decline and much of the company’s $7.2 billion convertible debt outstanding would be at risk of being redeemed for cash rather than new shares at maturity. At that point, things get even more difficult because MicroStrategy’s software business is losing money and cannot generate cash from Bitcoin. (MicroStrategy touts a metric called “BTC Yield,” which means profit, but actually measures the rate of increase in Bitcoin per share due to stock issuance and Bitcoin purchases.) There is actually no “yield” in the traditional dividend or Bitcoin sense.
© MicroStrategy
Permanent price appreciation is a tough call for any asset class, and the company seems to know that. Mr. Saylor’s persistent proselytization of Bitcoin (an odd choice for someone who has accumulated wealth) suggests a keen awareness of risk. He has garnered support from the government, met with President-elect Donald Trump’s son Eric (ahead of a 13% jump in stock prices on Friday), and is advocating for the introduction of a strategic Bitcoin reserve. No wonder. This is an ironic development for cryptocurrencies, which have long been touted as a bulwark against government intervention. But when strategy hinges on unrelenting enthusiasm, pragmatism trumps principles.
Two friends, one passion: Bitcoin 🚀 @Sailor pic.twitter.com/frpPpq4zu7
— Eric Trump (@EricTrump) January 3, 2025
The question that remains is whether MicroStrategy can sustain a premium valuation on the strength of its story, much like meme stocks that have ignored traditional valuation metrics. The company has effectively become a publicly traded company betting on the future of Bitcoin, but it still trades at a significant premium to the underlying asset. This premium represents either market confidence in Saylor’s vision or a temporary psychological inefficiency waiting to be arbitraged away.
The whole affair feels like a high-stakes game of musical chairs, and even the insiders seem to be placing bets as the tempo quickens. It remains an open question whether MicroStrategy’s strategy will be remembered as a stroke of financial genius or a warning. For now, the music continues to play, with the volume turned up to 11, and the faithful, or simply those in anticipation, continue to dance.
Read more:
— MicroStrategy’s secret is volatility, not Bitcoin (FTAV)
— Explore MicroStrategy’s record-breaking $21 billion ATM (FTAV)
