Author: Nancy, PANews

MicroStrategy has undoubtedly emerged as one of the big winners in this bull market, with its main business in business intelligence (BI) performing mediocrely while its side venture in Bitcoin has been thriving. Thanks to the strong momentum of Bitcoin, MicroStrategy has achieved massive profits after boldly betting on Bitcoin, driving its stock price to soar. This winning strategy is attracting more and more imitators trying to replicate its success.

However, while MicroStrategy realizes capital appreciation through Bitcoin's extraordinary returns, the high premium of its stock has raised market concerns, with well-known short-seller Citron publicly stating its position to short the stock. Can MicroStrategy's leveraged game continue?

Bitcoin Holdings Worth Over $32.6 Billion, Stock Price Surges 497% This Year

Since adopting a Bitcoin investment strategy in 2020, MicroStrategy has become a true whale, with its Bitcoin reserves now surpassing 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 about $99,000, MicroStrategy has realized approximately $16.2 billion in unrealized gains over the past four years.

Despite the substantial returns, MicroStrategy has not stopped increasing its Bitcoin investments, and its infinite money printing strategy is backed by issuing stocks and convertible bonds to purchase Bitcoin. According to MicroStrategy's latest announcement, the company has completed the issuance of $3 billion in zero-coupon convertible senior notes, which will mature in 2029, with a conversion price at a 55% premium to the market price, approximately $672 per share. This issuance raised about $2.97 billion net, and MicroStrategy plans to use most of the funds to purchase more Bitcoin and for other operational purposes. Furthermore, of the $21 billion raised from previous stock financing, $15.3 billion remains available for Bitcoin purchases, with plans to raise $42 billion over the next three years for Bitcoin investment.

According to the latest data shared by @thepfund, since November 18, the list of MicroStrategy's major bondholders (who have the option to convert bonds into stock) shows Vanguard at the top, followed by BlackRock, with several well-known financial institutions and investment firms such as Goldman Sachs, JPMorgan, and Deutsche Bank also appearing on the list.

The strengthening of Bitcoin's returns has boosted market sentiment regarding 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 it once ranked among the top 100 U.S. publicly traded companies by market cap. Moreover, in terms of stock performance, MSTR's price has climbed to $397.28, approximately 14 times the stock price when the company first purchased Bitcoin, having risen 497.8% this year, far exceeding Bitcoin's increase during the same period. Of course, MSTR's trading is also very active; according to Tradingview's tracking of the top 100 most active U.S. stocks, 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. According to MicroStrategy founder Michael Saylor's recent disclosure on social media, MSTR's financial operations have achieved a 41.8% return on Bitcoin, providing shareholders with a net gain of approximately 79,130 BTC. This equates to about 246 BTC per day, without the costs, energy consumption, or capital expenditures typically associated with Bitcoin mining. According to Fintel's tracking of the 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, Hain Capital Group, and BlackRock.

In this regard, CoinDesk analyst James Van Straten has pointed out that MicroStrategy's shareholders are a unique group; typically, dilution of equity is seen as a negative, but MicroStrategy shareholders seem quite pleased with their dilution because they know MicroStrategy is buying Bitcoin, a strategy that effectively increases the value per share, meaning shareholder value also increases.

High Stock Price Premium Sparks Controversy, Sustainability of Leveraged Strategy Becomes Focus

In the face of MicroStrategy's high stock price premium, market opinions on its underlying leveraged strategy have begun to diverge.

Optimists believe that MicroStrategy has successfully linked the potential rise 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 example, Mechanism Capital partner Andrew Kang stated on platform X that MicroStrategy is being pushed up by Bitcoin, with premium rates continuously reaching new highs, which traditional finance fails to understand, 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 leveraging volatility to raise additional fiat capital to purchase Bitcoin, significantly raising MicroStrategy's target price from $290 to $570.

"According to recent statistics, MicroStrategy's average cost for Bitcoin is $49,874, meaning it is now close to an unrealized gain of 100%, which is a super thick safety cushion. MicroStrategy is using over-the-counter leverage, with no liquidation mechanism at all. Angry creditors can at most convert their bonds into MSTR stock at a specified time and then angrily sell it on the market. Even if MSTR is driven to zero, it still does not need to be forced to sell these Bitcoins because the earliest debt that MicroStrategy borrowed needs to be repaid by February 2027. Moreover, due to MicroStrategy's convertible bonds, creditors are generally guaranteed to make a profit, so its interest is relatively low," stated Nothing Research partner 0xTodd.

In the view of dForce founder Yang Mindao, MicroStrategy is not just engaging in a triple arbitrage of stocks, bonds, and cryptocurrencies; the key is transforming MSTR stock into a true Bitcoin in traditional finance, a remarkable case of "borrowing to repair the real." As for when the flywheel will stop turning and when the music will stop, the core issue is how long the high premium of the stock and the net Bitcoin per share can be maintained. If market trends break expectations, and the supply of Bitcoin derivatives increases, the stock/Bitcoin premium of MicroStrategy could 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 high risks if they do not understand the underlying variables. 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, skeptics argue that MicroStrategy's current stock price premium far exceeds the value of Bitcoin itself, which could quickly narrow or even amplify the downside risk of the stock price with fluctuations in market sentiment.

For instance, Citron believes that with Bitcoin investments easier than ever (currently available through ETFs, COIN, and HOOD, etc.), MSTR's trading volume has completely detached from Bitcoin's fundamentals. While Citron remains bullish on Bitcoin, it has hedged by opening a short position on 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 be sustained. The company's premium relative to its Bitcoin reserves recently soared to nearly 300%, indicating a significant discrepancy 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 upward model resemble a "Ponzi scheme," which is unreasonable. The stock price has a huge premium compared to the value of its held Bitcoins, partly because some financial regulatory agencies prohibit people from purchasing Bitcoin ETFs, but investors are very eager for Bitcoin exposure, so they buy MSTR regardless of the premium, and MSTR also has a "yield strategy" in place.

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