Strategy
It indicates that their leverage usage is very conservative, and the possibility of liquidation is extremely low; 2/ Clearly, moderate leverage usage can outperform Bitcoin, especially when you have protection for debt maturity.
A simple mental model can help understand the type of leverage involved for companies like MicroStrategy. Imagine a long-term Bitcoin long position with 1.2x leverage, which would only be forcibly liquidated if the Bitcoin price remained below the theoretical “liquidation price” for three consecutive years.
If a company can permanently acquire more Bitcoin through leveraging, it will be able to maintain reserves that outperform Bitcoin, thereby providing Bitcoin returns to its shareholders. Long-term shareholders can view the Bitcoin value per share as a theoretical floor for its stock price, and this floor will permanently rise in Bitcoin terms. Bitcoin reserve companies are essentially designed as tools to outperform Bitcoin performance. This is why some are willing to hold these companies’ stocks at prices above book value without being taken advantage of.
For instance, in 2024, MicroStrategy (MSTR) generated 75% Bitcoin returns for its shareholders. This means that if your per-share price floor at the beginning of 2024 was 0.001 Bitcoin, it would become 0.00175 Bitcoin by the end of the year. If you purchased MSTR at a 1.75x net asset value at the beginning of 2024, the entire 75% premium you paid above the net asset value would be recouped in just one year.
Given the market’s expectations of a company’s future ability to provide Bitcoin returns for its shareholders, buying the company’s stock at a price above book value is entirely reasonable, and the notion of “trading $1 of Bitcoin for $3” is completely absurd.
What is the Growth Path of a Full-Stack Crypto Reserve Company?
So, reviewing the previous two sections, a “full-stack Bitcoin reserve company” should have “two legs”: the first leg is equity, and the second leg is debt. Typically, they start with equity and utilize ATMs to initiate the flywheel. By establishing a consistent record of regularly purchasing Bitcoin, the company builds trust as a Bitcoin reserve company strictly adhering to Michael Saylor’s strategy, which encourages investors to give it a higher premium, allowing the company to generate decent Bitcoin returns.
Utilizing ATMs helps scale the company, and once a certain scale is reached, they can start issuing fixed-income instruments, demonstrating that they can once again “leverage” a higher net asset value, further expanding their scale, and this process can be repeated as long as conditions permit.
“How long will that last?” Well, as long as Bitcoin’s compound annual growth rate is significantly higher than their debt interest payments, I believe this situation can last for a long time… Clearly, the main factor determining how quickly such a company can grow is how much premium its market value has relative to its net asset value, which is determined by the market, depending on attention, how reliable the company appears, how charismatic the CEO is, and so on.
Another general rule is that as the company scales, the mNAV (market net asset value) should gradually decline, but this does not mean that the premium will end at 1. The equilibrium mNAV in the medium/long term could very well exceed 1.5. This also does not mean that buying into a small company at a very high premium is a bad choice, as long as the Bitcoin returns offered by the company are sufficiently high, this approach can also be justified. As I previously wrote, each ATM operation lowers the mNAV premium, but this does not necessarily mean that your performance is inferior to the underlying asset (Bitcoin) during the same period. Theoretically, a company’s mNAV could drop from 5x to 2x while the prices of both Bitcoin and stocks remain unchanged.
What About Altcoin Reserve Companies?
Since I have discussed Bitcoin reserve companies, what about reserve companies for other cryptocurrencies? Well, they operate on a completely similar model. However, there are significant differences, as using other cryptocurrencies as the underlying asset means working with an asset that is much weaker, and the likelihood of “only going up” is much lower.
This means that using fixed-income components is far riskier, and most companies may choose not to go down this path. If your altcoin gradually falls back to zero over time (as most altcoins do), then borrowing dollars at an interest rate of 8% (or even 4%) to buy altcoins is clearly a bad idea.
Perhaps the best framework for thinking about these reserve companies is the one proposed by Guy Young (founder of Ethena):
Altcoin reserve companies are merely tools that allow the public market (and its massive scale) to access altcoins imperfectly. This is beneficial for stock buyers because buying the underlying asset at a premium is better than not being able to buy it at all (if they are bullish), and it is also beneficial for altcoins, as it brings in a new flow of funds compared to relying solely on crypto-native capital pools.
However, compared to Bitcoin reserve companies, altcoin reserve companies remain insufficient tools, as they cannot leverage both equity and debt paths to generate Bitcoin/cryptocurrency returns. This means that these companies’ market net asset values are more likely to trend towards 1, or even trade at a discount. But this is not the case for Bitcoin reserve companies.
As for Ethereum reserve companies, they can completely follow Michael Saylor’s strategy by utilizing fixed-income instruments. If you believe that Ethereum’s long-term compound annual growth rate is similar to Bitcoin’s, then this is indeed a good idea. However, if you do not have such strong confidence in Ethereum’s future, the risk of issuing debt to purchase Ethereum becomes significantly greater.
Summary
- True “full-stack” reserve systems have two aspects:
- Phase One: Equity / ATM transforms the mNAV premium, serving as a key tool for company scale expansion.
- Phase Two: Debt monetizes the difference between the Bitcoin compound annual growth rate and the borrowing costs.
- mNAV quality stock premiums greater than 1 can be very reasonable: If Bitcoin returns (BPS growth) ≥ premium paid, long-term holders will still profit.
- Altcoin reserves are singular, i.e., insufficient tools: Without debt leverage, they should trend towards 1x mNAV (or lower) in the long run.
