MicroStrategy's stock price is under pressure, with Bitcoin holdings exceeding $32.6 billion. Can the leverage game continue?

Author: Nancy, PANews

MicroStrategy's main business in business intelligence (BI) has performed mediocrely, but its side venture into Bitcoin has been thriving, making it undoubtedly one of the big winners in this bull market. Thanks to the strong momentum of Bitcoin, MicroStrategy has achieved huge 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 has realized capital appreciation through Bitcoin's extraordinary returns, the high premium of its stock price 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 Value Exceeds $32.6 Billion, Stock Price Surges 497% This Year

Since adopting a Bitcoin investment strategy in 2020, MicroStrategy has become a veritable 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 achieving substantial returns, MicroStrategy has not stopped increasing its Bitcoin investments, and its unlimited 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 is still 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 like Goldman Sachs, JPMorgan, and Deutsche Bank also appearing on the list.

The strengthening of Bitcoin yields 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 increased by 497.8% this year, far exceeding Bitcoin's gains 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 effects. According to MicroStrategy founder Michael Saylor's recent disclosure on social media, MSTR's financial operations have achieved a 41.8% Bitcoin yield, 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, MSTR's institutional holders have 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 form a unique group; typically, dilution of shareholder equity is seen as a negative, but MicroStrategy shareholders seem very pleased with their equity 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 opportunities, especially against the backdrop of strong Bitcoin price increases. For example, Mechanism Capital partner Andrew Kang stated on the X platform that MicroStrategy is being pushed up by Bitcoin, with premium rates continuously reaching new highs, which traditional finance fails to understand and is somewhat slow to recognize MicroStrategy's model; BTIG analyst Andrew Harte praised MicroStrategy's plan, believing that the company's management has done an excellent job of utilizing 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 only convert their bonds into MSTR stock at the designated time and then angrily sell it in 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 only 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 0xTodd, a partner at Nothing Research.

In the view of dForce founder Yang Mindao, MicroStrategy is not just engaging in triple arbitrage of stocks, bonds, and cryptocurrencies; the key is turning MSTR stock into a true Bitcoin in traditional finance, a remarkable "borrowing to repair the real." As for when the flywheel will stop turning and when the music will cease, 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, MicroStrategy's stock/Bitcoin premium 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 variables involved. 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, bears argue that MicroStrategy's current stock price premium has far exceeded the value of Bitcoin itself, which could quickly narrow or even amplify the downside risk of the stock price as market sentiment fluctuates.

For example, Citron believes that with Bitcoin investments easier than ever (currently, one can buy ETFs, COIN, and HOOD, etc.), MSTR's trading volume has completely detached from Bitcoin's fundamentals. Although Citron remains optimistic about Bitcoin, it has hedged by opening a short position in MSTR. Even Michael Saylor must know that MSTR is now overheated.

Steno Research also pointed out in a recent report that "the effect of MicroStrategy's recent stock split is gradually weakening, 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 that the company's valuation 'is significantly different from a direct calculation based on 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 is 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 regulators prohibit people from buying Bitcoin ETFs, but investors are very eager for Bitcoin exposure, so they buy MSTR regardless of the premium, and MSTR also has a kind of "yield strategy."