Capital Alchemy

MicroStrategy is, at its most basic level, orchestrating the greatest financial engineering of the century: it raises capital through debt and equity instruments, uses that capital to acquire more Bitcoin, and then repeats. By systematically tapping both bond and stock investors—who often can’t or won’t hold BTC directly—MSTR capitalizes on structural market constraints that let it obtain cheaper financing than a simple one-to-one equity raise would imply. Over time, this has transformed MSTR from a traditional software business into what is essentially a publicly traded vehicle for high-octane Bitcoin exposure.

Don’t Fixate on Premium: The Magic of mNAV and Yield

Many fixate on MSTR’s significant premium to the “spot” net asset value of its BTC holdings. But that misses the essence. Thanks to the arbitrage on each new capital raise, any premium to NAV is immediately accretive to BTC/share. For example, raising $1 billion of equity at a 200%+ premium translates to far less dilution—only a fraction of the shares need to be issued relative to the proceeds.

In late November 2024, MSTR  completed a $3 billion offering of convertible notes due 2029, at 0% coupon with a 55% conversion premium. At the time, the mNAV premium stood at approximately 2.927. This allowed the company to raise $3 billion in proceeds while only diluting the equivalent of $3 billion ÷ (100/55) ÷ 2.927 = $564 million worth of shares. Insane.

Saylor has clearly signaled that he intends to exploit this dynamic. His mention of “2× mNAV” in the past was valid when MSTR’s BTC yields were low, but with yields now in the double digits, it’s an entirely different conversation.

That’s why management is laser-focused on maintaining—and expanding—this premium: if it collapses, MSTR’s entire engine of accretive refinancing and BTC accumulation stalls. Conversely, as the premium stays intact or widens, the company can supercharge each raise, stacking BTC at a rate that would be impossible without such a reflexive pricing loop.

BTC = Earnings

If you accept that “Bitcoin yield”—i.e., the extra BTC MSTR accumulates each year via accretive financings—can be treated as true earnings, then you can apply a price-to-earnings (PE) approach to gauge fair value. Based on that logic, MSTR’s true comparable PE ratio sits below 8 for a company growing its yield (and thus its “earnings”) at over 40% annually. That’s a level that traditional data providers do not yet reflect due to FASB accounting, but it points to significant undervaluation relative to companies sporting similar growth rates.

MSTR currently trades at what some see as a depressed multiple, but catalysts for repricing loom. The firm has publicly stated it expects to exceed its future annual target BTC yield in the first few weeks of FY25, and there is talk of raising that target from 8% to something closer to 20–30%. Coupled with the possibility of Bitcoin entering a parabolic uptrend, these developments could turbocharge both the stock price and the implied PE multiple.

The Big Picture

Saylor is preparing to raise authorized share counts drastically (from 330 million to 10.33 billion common, plus a 2 billion perpetual preferred). By doing so, MSTR positions itself for far larger capital raises, possible capital extensions, and stock splits.

As Jeff Park from Bitwise notes, it’s vital to keep an eye on three key elements that govern MSTR’s long-term performance:  

1. The ongoing ability to tap credit at low rates,  

2. The velocity at which MSTR can monetize Bitcoin’s volatility without overextending its balance sheet, and  

3. The capital structure moves by Andrew Kang and his team—such as retiring in-the-money converts at opportune times.

Volatility is Vitality

MSTR exemplifies the adage that volatility is vitality. As of 01/06, implied volatility (IV) surged to 108.2. The IV premium to $IBIT climbed 10% to 1.90x, with volatility standing 89.8% higher than $IBIT at 57.0. High IV and active options flows create a fertile ground for advanced strategies, from gamma scalping to long straddles.

This elevated volatility profile of MSTR and corresponding derivatives are one of a kind. With options volume over the past two days hit levels not seen since late November, the demand for exposure to MSTR's volatility premium is clear.

A Magnet for Passive Inflows

As firms like Strive Asset and Bitwise plan ETFs that target companies holding significant amounts of Bitcoin, MSTR stands to benefit disproportionately. Having one of the largest BTC treasuries among all public companies, it will be a prime inclusion target for these new funds. That drives further passive inflows, lifts the share price, widens the premium to mNAV, and lowers MSTR’s effective cost of capital. When you factor in the possibility that BTC itself might rally, you get a reflexive loop where each new success begets more capital inflows, more BTC acquisitions, and a rising share count that can lock in greater yields over time.

Meet “Super Bitcoin”

MicroStrategy enjoys a powerful first-mover advantage as the de facto corporate pioneer holding such a large BTC position. Saylor’s outsize presence has turned MSTR into an almost “brand name” for Bitcoin in traditional finance. Other CEOs can (and do) follow the same treasury strategy, but MSTR’s multi-year lead, relationships, and proven track record give it a moat. We view MSTR as “Super Bitcoin”. Essentially you’re paying a premium (to mNAV) to see your BTC holdings climb 8% annually at the very minimum.

What MSTR is doing with its capital is transforming “high voltage” Bitcoin into “low voltage” securities, stripping away the volatility from BTC whilst providing downside protection for fixed income holders, and transferring it to equity holders. Thus, focusing solely on the premium misses the bigger picture.

Recently, the company generated a 41.8% yield last year—equivalent to 79,130 BTC. At around $90,000 per coin, that totals $7.3 billion. If you didn’t know how much Bitcoin they held or exactly how they achieved this, and only heard that our company delivered $7.3 billion in earnings and is growing over 40% a year, how much would that company be worth?

Saylor often draws analogies to companies like Microsoft or Apple, which trade far above their net tangible book value. He points out that MSTR is effectively refining Bitcoin, no different from how Standard Oil refined crude into gasoline or kerosene. If all you did was count the barrels of oil in the ground (just like MSTR’s reserve), you’d undervalue Standard Oil by ignoring the refining process. Likewise, if you just multiply MSTR’s BTC holdings by the spot price, you miss the operating business as the largest BTC treasury operation ever. These treasury operations have created accretive value for shareholders in BTC terms and will continue to do so until the fixed income market is saturated, an unknown ceiling.

TLDR

MSTR is worth significantly more than just its BTC holdings as:  

· It provides the $300T bond market access to the #1 performing asset whilst being the #1 performing bond.  

· It offers the #1 most volatile instrument to convertible arbitrageurs and options traders.  

· It has the #1 cheapest access to capital on the planet.  

· It is the #1 hyper-growth company by earnings measure at that scale.