MicroStrategy plans to raise $4.2 billion in the next three years to continue increasing its holdings of Bitcoin in order to enhance financial flexibility and market competitiveness. This article is sourced from MarsBit’s column “Not Producing, Just Hoarding Coins: MSTR’s Latest Financial Report Reveals MicroStrategy’s Capital Enrichment and High Premium Valuation Model,” compiled, translated, and authored by Block Beats.
Table of Contents:
From Software Company to Bitcoin Whale: MicroStrategy’s Transformation Journey
Interpreting MSTR’s Latest Financial Report: Capital Enrichment and Increased Bitcoin Reserves
1. Overview of Financial Report and Financing Plan
2. Cash Reserves and Future Financing Goals
3. Market Value and Book Value
4. Flexibility Advantage of BTC as a Core Asset
5. MicroStrategy’s Bitcoin Holding Principles
6. Difference Between MicroStrategy and Bitcoin Spot ETF
Capital and the Loop of High Premium Rates: MicroStrategy’s Valuation Code
The higher the premium rate, the more suitable for large-scale financing
Simplified Analysis of Premium Rate and Enrichment Effect
Similarly, if financing of $42 billion is planned according to the plan
MicroStrategy’s advantages and the logic behind the high premium rate
Continued enrichment of returns
Volatility and Market Bridge
Conclusion: Self-enhancing effect of high premium rate in a bull market
Historically, when a traditional industry reaches its peak, some groundbreaking companies often emerge, finding unique “production methods” in the market’s gaps, attracting capital with distinctive strategies. These companies rarely “produce” tangible goods but concentrate resources on a core asset – much like Shell Oil Company in the past maintained valuation through oil reserves, or gold mining companies dominated prices through gold mining and reserves. In the early morning hours today, MicroStrategy’s financial report was released, once again showcasing a company like this: not known for “production” but breaking traditional valuation rules with massive investments in Bitcoin, becoming one of the world’s largest and most unique Bitcoin holders.
MicroStrategy (MSTR), with the stock code MSTR, originally built its empire on business intelligence software. However, founder Michael Saylor hit the accelerator in 2020 and steered directly onto the “fast lane” of Bitcoin. Since then, Saylor has shifted the company’s focus from traditional “production” to the potential of Bitcoin as a core asset, gradually converting the company’s reserves into Bitcoin and even staking his own fortune to transform MicroStrategy into a “hoarding bank” for Bitcoin. In Saylor’s eyes, Bitcoin is the digital world’s gold and the anchor of the global financial future. Some think he’s crazy, while others call him a “Bitcoin evangelist,” but he firmly believes he is securing a “new gold standard” for the company.
Saylor doesn’t want to follow the old path; he positions MicroStrategy more like “air freight”: compared to traditional ETF’s “ground logistics,” MicroStrategy directly purchases Bitcoin through debt issuance, loans, equity issuance, etc., to flexibly and efficiently chase the Bitcoin market’s growth. This makes MicroStrategy not just a stock code but a “fast target” in the Bitcoin market, directly linked to the rise and fall of Bitcoin. Saylor’s actions have sparked controversy, with well-known investor Peter Schiff even mocking on the X social platform, “The company doesn’t produce any products but achieves a high valuation by hoarding Bitcoin.” He points out that MicroStrategy’s market value has surpassed most gold mining companies, second only to Newmont Corporation.
In response, Saylor kept it simple: “Bitcoin is our future reserve asset.” Driven by this firm belief, MicroStrategy has accumulated over 252,220 Bitcoins and plans to raise $4.2 billion in the next three years to continue increasing its holdings. MicroStrategy’s “production” method is not traditional material manufacturing but building a new financial system around Bitcoin’s “infrastructure.”
Some say Saylor is gambling, but perhaps, this is not just a gamble but a faith. He is taking a risk to pave an alternative path, making MicroStrategy an alternative target in the financial market. As he puts it, “We don’t produce; we just ‘hoard coins.'”
MicroStrategy’s released financial report overall presents positive expectations. The company plans to raise $4.2 billion in the next three years to continue increasing its Bitcoin holdings, while also completing the repurchase of previously pledged Bitcoins. As of the financial report date, MicroStrategy holds a total of 252,220 Bitcoins.
Since the end of the second quarter of 2024, the company has purchased an additional 25,889 Bitcoins at a total cost of approximately $1.6 billion, with an average price of $60,839 per Bitcoin. The company’s current total market value is approximately $18 billion, with accumulated Bitcoin purchases costing $9.9 billion, at an average price of around $39,266 per Bitcoin. The company raised $1.1 billion through the sale of Class A common stock and raised an additional $1.01 billion through the issuance of convertible bonds due in 2028, while repaying $500 million in senior secured notes and releasing all Bitcoins from collateral. This release of collateral significantly enhances the company’s financial flexibility and reduces its risk under extreme market conditions.
MicroStrategy currently holds $836 million in cash, providing stable financial support for further Bitcoin purchases in the future. The company has also announced phased financing goals: $10 billion in 2025, $14 billion in 2026, and $18 billion in 2027, totaling $42 billion. CEO Michael Saylor’s plan aims to strengthen the company’s core asset reserves by gradually increasing its Bitcoin holdings, which is undoubtedly seen as positive news by the market, rather than negative signals.
As of October 29, 2024, MicroStrategy’s market value is approximately $18 billion, with a book value of $6.9 billion, excluding $3 billion in accumulated impairment losses. The impairment is not due to MicroStrategy selling Bitcoins but based on book adjustments under current accounting standards. According to accounting rules, if the market price of Bitcoin falls in a quarter, the company must lower the book value of these assets and record an impairment loss. However, even if the price recovers later, the book value does not automatically increase but only reflects appreciation upon sale. If future accounting standards are revised (such as FASB’s Fair Value Measurement approach), this issue may be improved.
As a core asset, Bitcoin provides MicroStrategy with greater capital operational flexibility compared to spot ETFs. The company operates its Bitcoin reserves like an oil company’s oil reserves. Just as oil companies handle unrefined and refined products (such as gasoline, diesel, aviation fuel), MicroStrategy views Bitcoin reserves as a capital preservation tool, using this core asset to increase productivity and implement innovative financial strategies.
MicroStrategy has established eight core principles for holding Bitcoin, reflecting its long-term investment strategy and market orientation:
Continued purchase and holding of Bitcoin, focusing on long-term returns
Prioritizing the long-term value of MicroStrategy common stock
Maintaining transparency and consistency with investors
Using intelligent leverage to ensure company performance outperforms the Bitcoin market
Adapting quickly and responsibly to market dynamics for continuous growth
Issuing innovative fixed income securities supported by Bitcoin
Maintaining a healthy and robust balance sheet
Promoting Bitcoin as a global reserve asset
Compared to Bitcoin spot ETFs, MicroStrategy’s uniqueness lies in its financing methods. ETF investors need to actively purchase ETF shares, while MicroStrategy raises funds through various channels such as equity, unsecured or secured debt, convertible bonds, and structured notes to directly increase Bitcoin holdings. This “selling shares for financing” model allows the company to actively raise funds to achieve long-term strategic holdings of Bitcoin.
MicroStrategy’s valuation model relies on market capitalization premium rates, increasing Bitcoin holdings through diluted financing to enhance per-share BTC holdings and raise the company’s market value. The detailed analysis of this model is as follows:
Assuming a Bitcoin price of $72,000, and MicroStrategy holding 252,220 BTC, the total holding value is approximately $18.16 billion. With the current market value of the company at $48 billion, MicroStrategy’s market value is 2.64 times the total Bitcoin holding value, resulting in a current premium rate of 164%.
Assuming the company’s total share capital is 10,000 shares, with each share corresponding to about 25.22 BTC.
If MicroStrategy plans to raise $10 billion through financing, the total share capital will increase to 12,083 shares. In this scenario, the company can purchase approximately 138,889 Bitcoins with $10 billion at a price of $72,000, increasing the total Bitcoin holdings to 391,109 Bitcoins. This will also increase the per-share BTC holdings to 32.37 Bitcoins, representing an increase of about 28%.
Further assuming that MicroStrategy increases its share capital by 87.5%, i.e., by issuing 8,750 shares to raise $42 billion, the total share capital will increase to 18,750 shares. If the company purchases Bitcoin at $72,000, it can acquire about 583,333 Bitcoins, increasing the total holdings to 835,553 Bitcoins. At this point, the per-share BTC holdings will increase to 44.23 Bitcoins, approximately 75% higher than before.
If this enrichment effect is realized within three years, the average annual enrichment will be 25%.
Of course, the Bitcoin price may fluctuate when reinvesting, potentially higher or lower, but this does not change the enrichment conclusion. In MicroStrategy’s extremely high premium rate (currently fluctuating around 180%-200%) financing model, the company should maximize financing using the premium rate to the fullest. Therefore, although CEO Michael Saylor’s $42 billion financing plan initially caused market panic, market sentiment quickly recovered, indicating the company’s clear understanding of the current model, a rational decision maximizing shareholder equity.
Many investors may wonder why the market is willing to purchase MicroStrategy’s ATM or convertible bonds at a high premium rather than directly investing in a Bitcoin ETF. This involves several unique advantages of MicroStrategy:
By continuously financing to increase Bitcoin reserves, MicroStrategy achieves an annualized return enhancement of 6%-10%, reaching a 17% annualized enhancement in 2024. Under the current high premium rate financing model, the annualized enhancement is expected to exceed 15%. Based on a valuation of 10 to 15 times, MicroStrategy’s premium rate corresponds to a valuation of 150%-225%.
Michael Saylor believes that MicroStrategy acts as a bridge between traditional capital markets and the Bitcoin market. With Bitcoin’s current market value of about $1.4 trillion and relatively low penetration, an increase in penetration means that even if only 1% of funds from the global $300 trillion bond market are allocated to Bitcoin, it could bring about $3 trillion in potential incremental funds to MicroStrategy. Additionally, the convertible bonds issued by the company not only provide some downside protection but also offer potential call options for Bitcoin price increases.
In a bull market environment, MicroStrategy’s valuation model and high premium rate financing model form a self-enhancing positive loop. The higher the premium rate, the larger the financing amount for the company, thereby increasing the per-share BTC reserve and further boosting the company’s market value. This market effect rolls like a snowball, especially as Bitcoin prices are expected to rise to the $90,000-$100,000 range, MicroStrategy may continue to accelerate under the high premium rate’s protection.
Michael Saylor’s bet and the market’s response seem to herald a subtle game between traditional finance and digital assets. In this dual confrontation of capital and technology, will MicroStrategy lead a financial revolution, or will it be just a flash in the pan? What we are witnessing may be a harbinger of future financial transformation.