Summary Michael Saylor is evolving MicroStrategy from simply holding Bitcoin to a "Bitcoin bank," offering financial instruments and consultancy services tied to its BTC holdings. Saylor uses MicroStrategy’s NAV premium to issue convertible notes and ATM offerings, boosting BTC per share and driving shareholders' gains in Bitcoin terms and - so far - share price. MicroStrategy owns 1.5% of total Bitcoin supply, positioning itself as a thought leader and bridge between TradFi and Bitcoin - I see this as a competitive advantage supporting its NAV premium. The strategy hinges on Bitcoin maturing into a global reserve asset. Failure to maintain its NAV premium or a significant drop in Bitcoin prices below $20,000 could undermine MSTR’s position. I remain bullish on MicroStrategy, holding my 150 shares and potentially adding more. For believers in Bitcoin’s long-term potential as a global reserve asset, MSTR is a BUY in my opinion. MicroStrategy overview I hold 150 shares in MicroStrategy Incorporated ( MSTR ), which represent roughly 10% of my main investment portfolio. With MSTR reaching new All-Time-Highs, an ongoing Bitcoin (BTC-USD) bull run and the ticker getting added to the Nasdaq 100, I have recently reflected on whether I should sell part of my position. After researching, I have decided not to. I believe there is still potential upside to this stock, assuming the Bitcoin bull run continues. I believe many analysts misunderstand Michael Saylor’s vision for MicroStrategy, focusing too much on its premium to Bitcoin holdings rather than its broader strategy. In this article, I’ll explain why I think Saylor aims to position MicroStrategy as the first “Bitcoin bank” and outline the investment thesis for the company. This is my second article on MicroStrategy. My previous coverage was when the stock traded at $122, where I rated it a BUY for investors comfortable with high volatility. What is Saylor doing? The NAV Premium “money glitch” Saylor has a chest containing Bitcoin worth roughly $35 Billion (MicroStrategy), and he is somehow able to convince the market to buy rights to this chest (shares in MicroStrategy) for 3 or more times the value of what’s in the chest. MicroStrategy also has a software business, but I think it’s negligible relative to its Bitcoin holdings and I will not take it into consideration for my analysis. I will cover MicroStrategy’s rich NAV premium later, but first I want to explain what Saylor is doing to profit from this situation. He pockets the difference between the value of Bitcoin in his chest and whatever the market is willing to pay for MicroStrategy. He does so in two ways: By issuing Convertible Notes - corporate bonds that can be converted by the bondholders into equity at a given price, at a later date. With At-The-Market ((ATM)) offerings - which means issuing new shares at market prices, diluting existing shareholders. Saylor uses the premium to purchase more Bitcoin for MicroStrategy, resulting in an ever-increasing BTC per share (see chart below). MSTR; BTC per Share 2020 to date (mstr-tracker.com) As a result of this strategy, shareholders are diluted in fiat terms, but they have registered a substantial gain in Bitcoin terms - as their shares “entitle” them to an ever-increasing amount of Bitcoin. In other words, normally, a company issuing new shares should see its price falling. But because MicroStrategy is able to increase its BTC per share by capitalizing on its NAV premium, the stock has done the exact opposite, appreciating by more than 500% this year to date. In a sense, Saylor has found a “money glitch” in the system, as he is able to constantly dilute shareholders without having his stock depreciating - because investors care about an ever-increasing BTC per share and the market discounts he will be able to buy more Bitcoin in the future. Is this “glitch” infallible? No, it is not - and I will explain what can go wrong in the next section. What can go wrong with Saylor's strategy? (Risks to the “money glitch”) I want to define the risks of Saylor’s playbook before I go into the details of why I believe it can be a winning strategy long term. The reason is that I want to be very clear with readers: I think Saylor is entering uncharted territories, playing with Bitcoin as if it was already a globally accepted reserve asset. I believe Saylor’s scheme can collapse (to different extents) if either of the following two scenarios occur: In case, MicroStrategy’s NAV premium goes to 1x or below. In this case, Saylor won’t be able to keep increasing the BTC per share of MicroStrategy by issuing new shares. In this scenario, the company would keep existing and simply trade at 1x its Bitcoin holdings. It would result in a nominal loss for investors who entered MicroStrategy at above 1x NAV, and in MicroStrategy underperforming Bitcoin for a period of time. If Bitcoin does not mature into a reserve asset, and drops below $20,000 per coin. This could effectively bankrupt MicroStrategy, which is by now leveraged on its Bitcoin holdings. If readers believe there is a concrete chance of the second risk materializing, they should steer away from MicroStrategy. There is simply no point in investing in MSTR, Bitcoin or any other Bitcoin proxy if you believe Bitcoin is a fad. This is also the main risk of entering MicroStrategy at any point in time, in my view. I believe most investors in MicroStrategy are believers in Bitcoin, which is also the reason why demand for MSTR shares is strong despite the constant shareholder dilution . While traditional investors wouldn’t care about “BTC per share” as a metric, MicroStrategy shareholders almost exclusively care about that metric. As long as BTC per share as a metric goes up, the glitch can keep going on. In the next section, I will explain why I think a NAV premium is justified, but this is still a concrete risk that investors entering MSTR at current levels should carefully consider. Why I think the NAV premium is justified - What’s a “Bitcoin bank”? The ultimate question about MicroStrategy is: why is the NAV premium justified? To answer this question, consider that MicroStrategy is one of the few publicly listed companies in the world to own Bitcoin, and by far the company that owns the most. MicroStrategy owns more than 330,000 BTC, equivalent to 1.5% of the total supply of Bitcoin. It is highly unlikely, in my view, that any other public or private company or financial institution will ever come close to having as much Bitcoin as MicroStrategy. If you consider the above a competitive advantage, I think it’s reasonable to believe that MicroStrategy should trade at some premium against its NAV holdings. If you do not consider MicroStrategy owning 1.5% of total Bitcoin supply as of 2024 a competitive advantage for the company, then it’s reasonable to believe MicroStrategy will eventually go back to trading at 1x its Bitcoin holdings. Personally, I do consider this a competitive advantage and I do consider a NAV premium justified. The reason has to do with the way Saylor is positioning its company. MicroStrategy rebranded itself as a “Bitcoin Development Company” earlier this year. The company is also becoming - in my view - the Bitcoin thought leader for corporations. On MicroStrategy’s website, users can download free whitepapers about corporate investments into Bitcoin and other topics linked to adopting Bitcoin. And this is without mentioning what Saylor is doing for Bitcoin, having become one of its strongest advocates with numerous public appearances. Beyond PR and advocating for Bitcoin, I also see MicroStrategy evolving into a “Bitcoin Bank”. In short, this means MicroStrategy can bridge the gap between Traditional Finance (TradFi) and Bitcoin, both by issuing financial instruments linked to its Bitcoin holdings and by consulting companies into adopting Bitcoin. In this sense, I see MicroStrategy operating similarly to how investment banks operate today when they consult companies in matters of Mergers & Acquisitions - charging fees both for consultancy as well as for issuance of bonds or other financial instruments to finance said M&As. Readers could argue that other companies - including traditional financial institutions - could do the exact same thing. While this is technically true, other financial institutions do not have their own Bitcoin holdings, and if they ever will, they are unlikely to ever have as much BTC as MicroStrategy’s. Not to mention, MicroStrategy also has far more credibility, in my view, considering how traditional banks have been very skeptical about Bitcoin until very recently if they are not still. This is where the competitive advantage for MicroStrategy comes into play and why its NAV is justified, in my opinion. As Bitcoin evolves, so may MicroStrategy’s offering as a Bitcoin bank. I believe an interesting evolution could be offering margin loans on Bitcoin holdings to other corporate entities. Assuming Bitcoin will grow into a global reserve asset, elevating itself as the soundest, deflationary form of money, selling Bitcoin to finance daily operations would not make logical sense. This is something I covered in one of my past articles about Bitcoin - arguing how, if my Bitcoin bull case takes place, Bitcoin won’t be able to operate as a global currency. The most logical thing to do would be to take a margin loan in fiat currency and take full benefit of the constant depreciation of fiat currencies in Bitcoin terms. In this context, corporations that followed MicroStrategy’s lead in adopting Bitcoin as a reserve asset might eventually turn to MicroStrategy for margin loans on their BTC holdings. While this may seem far-fetched based on Bitcoin’s current status, it represents a potential scenario in the strong bull case for MicroStrategy. I will revisit the risks linked to this bull case in my second risk section later in this article. MSTR’s convertible debt offer indicates strong institutional demand An example of how MicroStrategy is evolving into a Bitcoin bank is the issuance of convertible debt notes. The last offering has been almost doubled from an initial $1.75 Billion to a final $2.6 Billion. This is especially impressive in my opinion, considering that these convertible notes carry a 0% interest rate at a time where T-Bills are yielding above 4%. And who is buying these notes? Listening to skeptics, you would expect buyers to be retail investors and other crypto actors. On the contrary, one of the buyers of these convertible notes was Allianz SE (ALIZF)(ALIZY), an established European insurance company. In other terms, we are already seeing established TradFi players deciding to purchase a convertible note that pays 0% interest in times of high interest rates , just because it’s backed by a significant Bitcoin reserve. Consider also that these notes are convertible into MicroStrategy’s shares at a price of $672.40, which is almost 60% higher than what the stock is trading at the time of writing of this article. In my view, this indicates very strong interest for Bitcoin-linked financial instruments and the market is already discounting a Bitcoin bull run, as well as MicroStrategy trading at significantly higher levels than today. What’s a fair NAV premium? I expect volatility as the market figures it out I have already mentioned how I believe a NAV premium is justified for MicroStrategy. The problem is understanding what exactly is the level of premium that is justified. Looking at history, MicroStrategy traded at a higher premium than today in 2020 and 2021. This was at a time when the company just announced its BTC strategy, and a Bitcoin bull market was in full swing. MSTR; NAV Premium, 2020 to date (mstr-tracker.com) Ultimately, I do not have a precise estimate of what a “fair” NAV Premium looks like for MicroStrategy. Based on history and on the fact that convertible notes indicate a potential 60% upside from current levels, I am however confident there is still room to grow. That’s especially true considering how, even if the premium stays as is (around roughly 3X), a bull case for Bitcoin could still drive significant appreciation of MSTR shares. This is also the reason why I decided not to sell any of my 150 shares in MicroStrategy, but rather give faith to Saylor and see how his company will evolve together with Bitcoin. Nevertheless, I do expect significant volatility going further. As Saylor keeps up with ATM offerings and its first convertible notes come to fruition, the stock will inevitably trade at vastly different premiums in the foreseeable future. Eventually, if Bitcoin ever truly matures as a global reserve asset, so will MicroStrategy as a Bitcoin bank. Don’t buy MSTR stock unless you believe in Bitcoin (reiterating risk) I have already outlined the risks with Saylor’s strategy at the beginning of this article. However, I want to reiterate that the ultimate risk with entering MicroStrategy is that Bitcoin does not end up maturing as a global reserve asset and plummets to new lows. This might very well happen if - for example - the upcoming Trump administration ends up not having the US starting a Bitcoin reserve and pivoting away from Bitcoin completely. While I deem this risk unlikely at this point in time, it is still something that investors should carefully consider before evaluating starting a position in MicroStrategy. My “BUY” rating is only valid assuming investors are willing to bet on Bitcoin maturing as a global reserve asset. In my view, this means Bitcoin matching gold’s market capitalization in the next 3 to 7 years - something I have covered in my Bitcoin articles in the past. Readers who do not believe in Bitcoin as an asymmetric bet on it becoming a new, superior form of global reserve asset should steer clear from MicroStrategy, in my opinion. Conclusion MicroStrategy is entering uncharted territories, trying to evolve from a company simply holding Bitcoin in its coffers to a full “Bitcoin bank”, offering financial instruments linked to its BTC holdings as well as consultancy services related to adopting Bitcoin. The strong institutional demand for its recent convertible note issuance suggests, in my view, that Saylor is succeeding in this ambitious evolution. I find this strategy compelling and have no plans to sell my 150 shares of MicroStrategy. In fact, I may consider adding to my position as I continue to see significant upside potential. I believe that owning 1.5% of the total Bitcoin supply in 2024 provides MicroStrategy with a unique competitive advantage, justifying its NAV premium. However, my bullish thesis assumes that Bitcoin will mature into a global reserve asset as the safest and soundest form of money. For investors who do not share this belief, I recommend avoiding MicroStrategy. But if you agree with this outlook, my suggestion is a BUY at current levels.
