Summary Metaplanet writes put options to buy Bitcoin, in addition to raising considerable cash from equity and debt sources - Japanese debt is cheap. The stock has surged due to short squeezes and meme-stock dynamics in the latest days as the company continues to "aggressively" accumulate Bitcoin and adopt a meme-stock character. Ultimately, it's a public listing that could be enhanced by short squeezes as it's heavily shorted, but Bitcoin underlies it, and it is already extremely volatile. Discussing a Bitcoin (BTC-USD) levered play like Tokyo-based Metaplanet Inc. ( MTPLF ) is not in the norm for us, but it has been hit by some interesting dynamics a little bit unique to a Japanese issue. There has been a short squeeze as the company adopts some meme-stock trading characteristics, and its exceptional short selling ratios has meant a squeeze has been in with a major scarcity of stocks available across the illiquid US listing and the Japanese listing that further rocketed the shares. It gained almost 200% since late April, moving up by a multiple of BTC's rise in that period, prior to that mostly trading in line with BTC. The company pivoted into this Bitcoin strategy recently, and we will say right away we have no interest in the company. They are raising major funds to speculate on Bitcoin, and their income generating strategies will to a significant degree be driven by selling put options. They may be hedging, but we couldn't find any disclosure to that effect. They did say they were cash collateralised in their option writing strategy at least. Of course, they hold massive amounts of Bitcoin, an asset whose long-term viability we seriously question, and their operating business also depends on Bitcoin going up it would seem, something we aren't going to bet on. Breakdown As far as we understood, the company is employing an all in strategy on Bitcoin. Initially, the business was focused on a hotel location in central Tokyo and also something in Hiroshima, doing hospitality, but then one day they decided that on the conviction that Bitcoin is somehow going to be the future, they would raise considerable amounts of cash, around 40 billion JPY it would seem in equity based on the balance sheet , and also some debt it would seem though they've repaid some of it, cumulatively raising around 80 billion JPY, with a plan of putting it into Bitcoin. Additionally, they have a " treasury management " business which is basically dominated by selling put options that are "cash collateralised" also on Bitcoin. They hold around 51 billion JPY in Bitcoin as of the quarterly figures, around 90% of the company's total assets. Though now it would seem that have over 100 billion JPY in Bitcoin . They seem to have gotten into this already from the beginning of 2024 when they started to purchase Bitcoin. Segment Results (Q1 Earnings) The majority of their earnings at this point at the operating level, before accounting for the impact of gains on Bitcoin, are now from the Bitcoin income generation strategy. The ordinary income contains the gains they are making on Bitcoin, which they are accumulating "aggressively" and as a long-term investment. In other words, Metaplanet is a Bitcoin bet, a bit like MicroStrategy ( MSTR ). Metaplanet is one of the largest public holders of Bitcoin in the world. Comments There are some advantages to Metaplanet: There are some tax advantages in investing in Metaplanet as opposed to directly in Bitcoin, but this only seems to apply to Japanese tax residents. The fact that they can raise capital, particularly from debtors but also from shareholders despite the NAV premium, is very good for prior shareholders. Debt capital is also very cheap in Japan. Despite Metaplanet's employment of leverage, investors in Metaplanet are limited in liability by virtue of it being a public limited company, provided investors aren't using leverage to invest in the stock. It is highly shorted , meaning short squeezes are possible with stock to cover shorts possibly becoming suddenly very scarce, and this could become a new majorly followed meme stock. With the TSE circuit breakers kicking in frequently with it is also causes covering to be harassed. It is the most shorted stock in Japan as of a few days ago. But then there are clearly some major questions: There is no track record, yet the company is filling their presentations with data about how they're the best performing stock in the Japanese market, dominated mainly by industrial auto names and other slow movers (not as big of an accomplishment). Similarly, we don't really have much information on their income generating strategy other than that they are writing put options, which of course could one day go very badly for them. At least it's cash collateralised, which we'll take to mean they are not employing a lot of leverage. We entirely question the viability of Bitcoin. Other than the obvious, which is that it's very volatile (not a good store of value), mining is very energy and relatively time intensive, and it's not a practical currency especially compared to more reasonably managed fiat currencies, we also doubt the validity of the decentralisation principle which is at the centre of Bitcoin. In short, pool mining is the only logical way to go about finding nonces in a proof of work system. This means that coordinated miners are essentially causing centralisation , and pool mining has to be administrated by some entity. These could be compromised or may already be compromised. It's a vulnerability, and the more threatening Bitcoin becomes as an alternative to fiat, the more likely this vulnerability will be exploited if possible - though this risk is remote. It trades above NAV consistently. Currently, it is trading at multiples of its approximate NAV (around 100 billion JPY in Bitcoin, but market CAP is around 580 bn) Bottom Line As far as Metaplanet is concerned, while it may be interesting as an enhanced Bitcoin play in the event of a short squeeze, also because if it becomes used as a speculative tool to trade Bitcoin on the public markets at key moments shares will become especially scarce and buyers can also worsen squeezes by competing for shares looking to be used for cover, it is ultimately a newfangled Bitcoin play. You have to want to own Bitcoin to be interested in Metaplanet. If it becomes a meme stock, it may rocket, but it will also become incredibly volatile. We're not touching it.
