Strategy (NASDAQ: MSTR), the SaaS-based Business Intelligence Company, formerly known as Microstratey, pioneering a Bitcoin Treasury strategy, is currently shopping for a market capital of $ 73 billion, ~ 1.6x the value of its underlying Bitcoin stocks. This so-called “Mstr premium” has caused a lot of misunderstanding, healthy skepticism and even finding, but with a decade of deep shares experience we believe there are three reasons why the Mstr premien is justified. These are especially valid during periods of increasing Bitcoin prize expectations that we are in now.
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Diagram: Mstr’s premium to NAV
Source: mstr-tracker.com, GSR
First, the strategy assumes leverage by issuing equity and debt to invest the proceeds in Bitcoin, which earns the difference between the return on Bitcoin and its capital costs (ie “berries”). It is important that the strategy serves this berry not only this year, but also in the coming years, and investors are simply contemporary value of this expected future berries and includes it in Mstr’s market capital.
In fact, this is a major reason why Mstr’s prize fluctuates with the market’s expectations of future Bitcoin returns. Nevertheless, the first reason why MSTR deals with a prize for its BTC holdings is that investors are drawing future BTC to the present.
Secondly, strategy is serving intelligent capital markets issuance in favor of shareholders. It accumulates value via convertible debt issuance, where it is not only paid to offer Bitcoin-like returns to the bond market, but also to the volatility associated with its share, as convertible bond-arbitrageurs make more money with an unstable underlying asset. In addition, MSTR-WELECTION, mostly through the money on equity issuing programs, sends a premium for a prize for posted value, as per. Definition is accrete for shareholders. In fact, issuing equity to twice posted value to sell $ 1 for $ 2, or vice versa to buy BTC at 50% off. Such was the strategy capable of generating an increase of 74% in the amount of its bitcoin, which was held per year.
Eventually, the entire construction benefits from Bitcoin and Cryptos Nascency, the fact that cryptocurrencies are in secular expansion and that Bitcoin’s price has tended to rise over time.
For those who are not yet convinced, we offer the following thought experiment: If I had a magical bank account with $ 100 USD in the one that paid you a interest rate of 69%, how much money would you pay me for it? While the answer may vary from person to person, it is probably much more than $ 100, which means the bank account would trade with a prize for its underlying USD (ie NAV).
This is exactly what happens to Mstr as it has increased its BTC per year. Share at a 69% annual rate since it started investing in Bitcoin in August 2020. This increase in BTC per year. Share (ie yield in nature) is higher under bull markets and lower under bear markets, but it has generally risen over time. And while there is no guarantee that the strategy will continue to increase its BTC per year.
Risks abound, of course – Mstr -Investors take due to the risk of the price of BTC, and the stock tends to move more than Bitcoin in both directions. Similarly, the prize can move up or down in the future, and the stock is likely to trade with a discount (ie under the value of its bitcoin stocks) under bear markets. But the prize exists because investors believe that Mstr will continue to increase the amount of its bitcoin per year. Stock in the future and they are willing to pay for it now.
Diagram: Mstr’s increase in Bitcoin per Stock (ie Bitcoin yield)
Source: mstr-tracker.com, GSR
