Introduction to Bitcoin and MicroStrategy
The world of Bitcoin and cryptocurrency has been growing rapidly over the past few years, with many companies investing heavily in this new form of currency. One such company is MicroStrategy, which has been making headlines with its significant investments in Bitcoin. The company’s CEO, Michael Saylor, has been a strong advocate for Bitcoin and has implemented a strategy to invest heavily in the currency.
Understanding MicroStrategy’s Strategy
MicroStrategy’s strategy involves buying and holding large amounts of Bitcoin, with the goal of increasing the company’s value over time. The company uses leverage, such as at-the-market equity offerings and convertible senior notes, to increase its Bitcoin holdings. This strategy has been successful so far, with MicroStrategy’s Bitcoin holdings currently valued at approximately $60.89 billion.
The Premium on MicroStrategy’s Stock
One interesting aspect of MicroStrategy’s strategy is the premium on its stock. According to Blockstream CEO Adam Back, the premium on MicroStrategy’s stock is within reason, considering how quickly the company doubles its Bitcoin per share. This reduces the risk for investors, as the company’s Bitcoin holdings are increasing rapidly. Back explained that if MicroStrategy’s Bitcoin per share keeps growing at the same rate, after about a year and a half, investors would be at an equivalent of the market net asset value (mNAV), meaning the stock price would align with the value of its underlying Bitcoin holdings.
Justification for the Premium
Back justified the premium on MicroStrategy’s stock, stating that it’s not unreasonable considering the company’s track record. He explained that the premium is around 2x, which is not excessive given the company’s rapid growth in Bitcoin holdings. Additionally, the company’s use of leverage allows it to increase its Bitcoin holdings quickly, which reduces the risk for investors.
Risks and Volatility
While MicroStrategy’s strategy has been successful so far, there are risks and volatility associated with investing in Bitcoin. Back noted that when investing in Bitcoin treasury companies, it’s essential to consider whether the premium is reasonable. He also stated that investors face a higher risk when the mNAV is elevated, as it can be speculative. However, he also noted that treasury companies with high mNAVs often have a high yield, which can offset some of the risks.
Comparison to Other Companies
MicroStrategy is not the only company investing in Bitcoin. Other companies, such as Metaplanet, have also been investing heavily in the currency. Metaplanet has experienced more volatility with its mNAV, but it has generally managed to recover each time. The company’s latest purchase of 1,112 Bitcoin has tipped its total Bitcoin holdings to 10,000 BTC, surpassing Coinbase as the seventh-largest publicly traded company with a Bitcoin treasury.
Conclusion
In conclusion, MicroStrategy’s strategy of investing heavily in Bitcoin has been successful so far, with the company’s Bitcoin holdings valued at approximately $60.89 billion. The premium on the company’s stock is within reason, considering the rapid growth in Bitcoin holdings. While there are risks and volatility associated with investing in Bitcoin, the potential rewards are significant. As the world of cryptocurrency continues to grow and evolve, it will be interesting to see how companies like MicroStrategy and Metaplanet continue to invest and innovate in this space.
