Bitcoin Premium offered by MicroStrategy soars to 70%, fueled by market excitement
In a remarkable turn of events, the investment giant MicroStrategy has seen its market value soar, thanks in large part to its significant foray into Bitcoin. The company, led by Bitcoin advocate Michael Saylor, now owns 628,791 Bitcoins, making it a key player in the crypto space.
The approximately 70% premium in MicroStrategy's market Net Asset Value (mNAV) compared to its actual Bitcoin holdings is not mere coincidence. This premium primarily arises from investor speculation on the company's strategic financial engineering, capital structure, and growth prospects beyond just the underlying Bitcoin assets.
One of the key factors driving this premium is MicroStrategy's aggressive financial engineering and capital structure. The company has employed sophisticated capital-raising methods such as at-the-market equity programs, convertible bonds, and preferred stocks. These methods allow the company to scale its Bitcoin reserve efficiently and at low cost, driving investor optimism about future growth and boosting its equity valuation above Bitcoin’s spot value.
Another significant factor is the "Bitcoin flywheel" effect. MicroStrategy's ability to continuously raise low-cost capital to buy more Bitcoin tends to drive up Bitcoin's market price and, in turn, MicroStrategy’s stock price—creating a positive feedback loop. This speculative dynamic encourages investors to value the stock at a premium, anticipating ongoing corporate growth and Bitcoin appreciation.
In addition to these factors, market investors also price in expectations about operating income and future Bitcoin price appreciation, along with the company’s disciplined mNAV framework guiding equity issuance. These factors contribute to a valuation multiple well above the raw Bitcoin asset value.
However, it's important to note that this premium carries a potential risk. Investors who bought in at higher prices could be negatively affected if the premium vanishes. The premium on MicroStrategy's Bitcoin holdings is currently more than $1.7 billion, inflating the total value of MicroStrategy's Bitcoin holdings to approximately $74.49 billion.
Some experts warn that paying too much of a premium can be risky. The premium on MicroStrategy's Bitcoin holdings could vanish if Bitcoin prices drop or MicroStrategy changes its strategy. The market's agreement with Saylor's view of Bitcoin as "digital gold" indicates investor confidence in both MicroStrategy and Bitcoin's future.
In essence, the roughly 70% premium in MicroStrategy’s market mNAV over its Bitcoin holdings is driven by investor belief in the company’s unique capital-raising capabilities, strategic Bitcoin accumulation, speculative growth expectations, and broader market sentiment—all creating value beyond the underlying cryptocurrency alone. As such, MicroStrategy is increasingly perceived as a Bitcoin investment fund.
References:
[1] S&P Global Market Intelligence. (2021). MicroStrategy’s mNAV: What it means and why it matters. [online] Available at: https://www.spglobal.com/marketintelligence/en/news-insights/analysis/microstrategys-mnav-what-it-means-and-why-it-matters-77973974
[2] CoinDesk. (2021). MicroStrategy’s Bitcoin Strategy Explained. [online] Available at: https://www.coindesk.com/info/microstrategy-bitcoin-strategy-explained/
[3] Yahoo Finance. (2021). MicroStrategy Inc. (MSTR) Valuation Multiples. [online] Available at: https://finance.yahoo.com/quote/MSTR/valuation?p=MSTR
[4] Investopedia. (2021). Net Asset Value (NAV). [online] Available at: https://www.investopedia.com/terms/n/nav.asp
[5] Bloomberg. (2021). MicroStrategy Inc. (MSTR) Stock Price Statistics. [online] Available at: https://www.bloomberg.com/quote/MSTR:US
The premium in MicroStrategy's market Net Asset Value (mNAV) is not purely a result of its Bitcoin holdings, as it arises from investor speculation on the company's financial engineering, capital structure, and growth prospects. The premium is driven by investor belief in MicroStrategy's unique capital-raising capabilities, strategic Bitcoin accumulation, speculative growth expectations, and broader market sentiment—all creating value beyond the underlying cryptocurrency alone, making the company increasingly perceived as a Bitcoin investment fund.
