If bitcoin is the future, what explains MicroStrategy’s need for speed?

{"text":[[{"start":null,"text":"

"}],[{"start":10.37,"text":"Something peculiar is afoot at MicroStrategy. "}],[{"start":13.649999999999999,"text":"The company has amassed over two per cent of all bitcoin in existence, funded through a combination of shares and convertible bonds. "},{"start":20.653999999999996,"text":"This strategy has turned a humdrum business software firm into something akin to a bitcoin ETF, albeit one trading at a frothy premium to its net asset value. "},{"start":29.622,"text":"The stock is up over 20 times since the pivot to bitcoin in August 2020. "}],[{"start":34.51,"text":"Yet recent months have revealed some curious contradictions in this narrative. "},{"start":38.638999999999996,"text":"While bitcoin has maintained its stratospheric altitude at around $100,000 per coin, MicroStrategy’s stock has drifted lower, shedding 40 per cent since peaking intraday on November 21 at $550, which implied at the time a market cap of $124bn. "},{"start":54.732,"text":"Even its inclusion in the Nasdaq 100 index failed to boost the share price. "},{"start":59.012,"text":"Its premium to net asset value has meanwhile decreased from a high of 3.8 times to 1.9 times. "},{"start":65.154,"text":"This decline in the share price is happening even as the company continues to acquire more bitcoin. "}],[{"start":71.21000000000001,"text":"More telling still is the company’s frenetic execution of its $21bn “at-the-money” equity offering, announced with much fanfare on Hallowe’en. "},{"start":79.45200000000001,"text":"What was billed as a three-year marathon has been run at the pace of a sprinter on amphetamines, with over two-thirds of the allocation exhausted in just two months. "},{"start":87.369,"text":"This is odd behaviour for a strategy ostensibly designed for disciplined, incremental buying. "},{"start":92.424,"text":"There has been no buying on the dip. "},{"start":94.39200000000001,"text":"Even as bitcoin’s price has held firm near its peak, Michael Saylor, the company’s chair, has ramped up bitcoin purchases at breakneck speed. "}],[{"start":null,"text":""}],[{"start":103.26,"text":"According to JPMorgan analysts, MicroStrategy accounted for an astonishing 28 per cent of capital inflows into the cryptocurrency market in 2024. "}],[{"start":112.54,"text":"There is also no time to waste. "},{"start":114.757,"text":"Last Friday the company announced plans to raise up to $2bn in perpetual preferred stock this quarter to buy more bitcoin, although the precise timing and terms have not yet been announced. "},{"start":124.674,"text":"This comes just over a week after MicroStrategy said it was seeking shareholder approval to increase its share count by over 3000 per cent from 330mn to 10.33bn. "}],[{"start":135.9,"text":"The timing smacks of opportunism, as if the company’s leadership recognises that the current NAV premium — the financial equivalent of finding money growing on trees — might not be permanent. "},{"start":145.954,"text":"There’s a hint of urgency (or desperation) in the air, an extreme haste to lock in this discrepancy between MicroStrategy’s stock and the bitcoin price before it is arbitraged away. "}],[{"start":156.84,"text":"Compounding the intrigue is the behaviour of MicroStrategy’s senior leadership. "},{"start":161.18200000000002,"text":"Saylor has publicly condemned diversification, urging investors to concentrate their portfolios in bitcoin with almost religious conviction. "},{"start":168.749,"text":"He has even suggested that people mortgage their homes to buy bitcoin! "}],[{"start":173.41,"text":"His lieutenants, however, appeared to have missed the sermon, cashing in huge chunks of their stock holdings for the very fiat currency their boss routinely derides. "},{"start":182.289,"text":"November saw a flurry of insider selling, as executives converted their shares into good old-fashioned Yankee dollars. "},{"start":188.594,"text":"MicroStrategy shares may be a bitcoin proxy and so ostensibly a unique store of value, but with insider sales totalling $570mn in 2024, management is not HODLing the stock. "}],[{"start":200.47,"text":"The paradoxes don’t stop there. "},{"start":202.799,"text":"In following its strategy MicroStrategy appears structurally predisposed to buying bitcoin at ever-higher prices. "},{"start":208.754,"text":"During the crypto winter of 2022-2023, when bitcoin wallowed in the teens and twenties, the company’s purchases slowed to a crawl as its stock traded around NAV. "},{"start":218.122,"text":"Yet as bitcoin’s price soared, so too did MicroStrategy’s buying frenzy. "},{"start":222.652,"text":"The business model seems less a bet on bitcoin’s inherent value and more a wager on the fervour it inspires. "}],[{"start":229.32,"text":"The premium to NAV holds as long as bitcoin keeps ascending, and that premium is the glue that holds the entire strategy together. "},{"start":236.399,"text":"By selling stock at 2-3 times NAV, MicroStrategy is in effect buying bitcoin at a substantial discount. "},{"start":242.742,"text":"Without the NAV premium, the stock price falls, and much of the $7.2bn of convertible bonds outstanding risks being redeemed for cash at maturity, not converted into new shares. "},{"start":253.447,"text":"At that point, things get a lot stickier for MicroStrategy because its software business loses money and it generates no cash from bitcoin. "},{"start":260.764,"text":"MicroStrategy trumpets a metric called “BTC yield”, which implies a return but really measures the percentage increase in bitcoin per share from its issue of stock and purchases of bitcoin. "},{"start":270.644,"text":"There is in fact no “yield” in the conventional sense of dividends or income streams. "}],[{"start":null,"text":""}],[{"start":275.36,"text":"Perpetual appreciation is a demanding ask for any asset class, and the company seems to know it. "},{"start":280.889,"text":"Saylor’s relentless proselytising for bitcoin — an odd choice for someone accumulating the asset — suggests an acute awareness of the stakes. "},{"start":288.307,"text":"It’s also no surprise that he is cultivating government support, meeting with President-elect Donald Trump’s son Eric (which preceded a sharp 13 per cent rise in the stock on Friday) and advocating for a Strategic Bitcoin Reserve. "},{"start":300.337,"text":"It’s an ironic twist for a cryptocurrency long touted as a bulwark against government meddling. "},{"start":305.317,"text":"But when your playbook hinges on unrelenting enthusiasm, pragmatism trumps principle. "}],[{"start":null,"text":""}],[{"start":311.15000000000003,"text":"The question that lingers is whether MicroStrategy can maintain its premium valuation through sheer force of narrative much like the meme stocks that have defied conventional valuation metrics. "},{"start":320.817,"text":"The company has effectively become a publicly traded bet on bitcoin’s future, but one that still trades at a substantial mark-up to the underlying asset. "},{"start":328.58400000000006,"text":"This premium represents either the market’s faith in Saylor’s vision or a temporary, psychology-driven inefficiency waiting to be arbitraged away. "}],[{"start":336.82000000000005,"text":"The whole affair feels like a high-stakes game of musical chairs, and as the tempo quickens, even the insiders seem to be hedging their bets. "},{"start":344.374,"text":"Whether MicroStrategy’s gambit will be remembered as a stroke of financial genius or a cautionary tale remains unresolved. "},{"start":350.77900000000005,"text":"For now, the music plays on, with the volume dialled up to 11, and the faithful — or the merely hopeful — keep dancing. "}],[{"start":358.38000000000005,"text":"Further reading: "}],[{"start":360.22,"text":"MicroStrategy’s secret sauce is volatility, not bitcoin (FTAV "}],[{"start":366.46000000000004,"text":"Examining MicroStrategy’s record-shattering $21bn ATM (FTAV "}],[{"start":371.99000000000007,"text":""}]],"url":"https://creatives.ftmailbox.cn/album/187429-1736202544.mp3"}