MicroStrategy plans to raise $42 billion in the next three years to continue increasing its holdings of Bitcoin, in order to strengthen financial flexibility and market competitiveness. This article is sourced from MarsBit’s column “Not Producing, Just Hoarding Coins”: MSTR’s Latest Financial Report Reveals MicroStrategy’s Capital Thickening and High Premium Valuation Model, compiled, translated, and written by Block Beats.
From Software Company to Bitcoin Whale: MicroStrategy’s Transformation Journey
MSTR’s Latest Financial Report Interpretation: Capital Thickening and Bitcoin Reserve Further Increase
1. Overview of Financial Report and Financing Plan
2. Cash Reserves and Future Financing Goals
3. Market Value and Book Value
4. Flexibility Advantage of BTC as Core Asset
5. MicroStrategy’s Bitcoin Holding Principles
6. Difference Between MicroStrategy and Bitcoin Spot ETF
Capital and High Premium Rate Loop: MicroStrategy’s Valuation Cipher
The higher the premium rate, the more suitable for large-scale financing
Simplified analysis of premium rate and thickening effect
Similarly, if financing $42 billion as planned
MicroStrategy’s advantages and logic behind high premium rates
Continued thickening of earnings
Volatility and market bridge
Conclusion: Self-enhancing effect of high premium rates in a bull market
Historically, when a traditional industry reaches its peak, some groundbreaking companies often emerge, finding unique “production methods” in the market’s gaps and attracting capital with unique strategies. These companies rarely “produce” actual goods, but concentrate resources on a core asset—like Shell Oil Company in the past maintaining valuation through oil reserves, and gold mining companies dominating prices through gold mining and reserves. Early this morning, with the release of MicroStrategy’s financial report, we once again see such a company: not renowned for “production” but breaking traditional valuation rules with massive investments in Bitcoin, becoming one of the largest and most unique Bitcoin holders globally.
MicroStrategy, stock code MSTR, originally made its mark with business intelligence software. However, founder Michael Saylor stepped on the accelerator towards Bitcoin in 2020. Since then, Saylor no longer kept the company in traditional “production” but saw the potential of Bitcoin as a core asset, gradually converting the company’s reserves into Bitcoin, even staking his own wealth to transform MicroStrategy into a “hoarding bank” for Bitcoin. In Saylor’s eyes, Bitcoin is the digital world’s gold, the anchor of the global financial future. Some think he’s crazy, while others call him a “Bitcoin evangelist,” but he firmly believes he is securing a “new gold standard” for the company.
Saylor does not intend to follow the old path; he positions MicroStrategy more as “air freight” compared to traditional ETF’s “ground logistics.” MicroStrategy secures financing through debt issuance, loans, equity issuance, etc., to directly purchase Bitcoin, being flexible, efficient, and able to chase Bitcoin market trends. This makes MicroStrategy not just a stock code but a “fast target” in the Bitcoin market, where the company’s market value directly fluctuates with Bitcoin’s rise and fall. Saylor’s operations have sparked some controversy, with well-known investor Peter Schiff teasing on social platform X, “The company doesn’t produce any products but achieves an ultra-high market value through hoarding Bitcoin.” He points out that MicroStrategy’s market value has surpassed most gold mining companies, second only to Newmont Corporation.
In response, Saylor kept it simple: “Bitcoin is our future reserve asset.” Driven by this firm belief, MicroStrategy has accumulated over 250,000 Bitcoins and plans to raise $42 billion in the next three years to continue increasing holdings. MicroStrategy’s “production” method is not traditional material manufacturing but building a new financial system around Bitcoin.
Some say Saylor is gambling, but perhaps it’s not just a gamble but a belief. He ventures into an alternative path through a daring adventure, making MicroStrategy an alternative target in the financial market. Just as he said: “We don’t produce, we only hoard coins.”
MicroStrategy’s released financial report presents positive expectations overall. The company plans to raise $42 billion in the next three years to continue increasing its Bitcoin holdings, while already completing the repurchase of previously pledged Bitcoins. As of the financial report date, MicroStrategy holds a total of 252,220 Bitcoins.
Since the end of the second quarter of 2024, the company has purchased an additional 25,889 Bitcoins at a total cost of approximately $1.6 billion, with an average price of $60,839 per Bitcoin. The company’s total market value is around $18 billion, with accumulated Bitcoin purchase costs of $9.9 billion, at an average price of $39,266 per Bitcoin. The company raised $1.1 billion through the sale of Class A common stock and raised $1.01 billion through the issuance of convertible bonds expiring in 2028. Additionally, the company repaid $500 million in senior secured notes, releasing all Bitcoin assets from collateral. This release significantly enhances the company’s financial flexibility and reduces its risk in extreme market conditions.
MicroStrategy currently holds $836 million in cash, providing stable funding support for future Bitcoin purchases. The company has announced phased financing goals: $10 billion in 2025, $14 billion in 2026, $18 billion in 2027, totaling $42 billion. CEO Michael Saylor’s plan aims to strengthen the company’s core asset reserves by gradually increasing Bitcoin holdings, which is undoubtedly seen as positive news by the market.
As of October 29, 2024, MicroStrategy’s market value is around $18 billion, with a book value of $6.9 billion, deducted by $3 billion in accumulated impairment losses. The impairment is not due to selling Bitcoins but based on current accounting standards for book adjustments. According to accounting rules, if the market price of Bitcoin drops in a quarter, the company must adjust the book value of these assets down and record impairment losses. However, even if the price later rises, the book value will not automatically recover, only reflecting appreciation upon sale. If future accounting standards change (such as FASB’s Fair Value Measurement), this issue may improve.
As a core asset, Bitcoin gives MicroStrategy higher capital operating flexibility compared to spot Bitcoin ETFs. The company runs its Bitcoin reserves like an oil company runs its oil reserves. Just as oil companies handle unrefined and refined products (such as gasoline, diesel, aviation fuel), MicroStrategy views Bitcoin reserves as a capital preservation tool, allowing the company to enhance productivity and implement innovative financial strategies.
MicroStrategy has formulated eight core principles for holding Bitcoin, reflecting its long-term investment strategy and market orientation:
Continuously purchase and hold Bitcoin, focusing on long-term returns;
Prioritize the long-term value of MicroStrategy common stock;
Maintain transparency and consistency with investors;
Use intelligent leverage to ensure company outperforms the Bitcoin market;
Adapt to market dynamics quickly and responsibly, continuing growth;
Issue innovative Bitcoin-backed fixed income securities;
Maintain a healthy and stable balance sheet;
Promote Bitcoin as a global reserve asset.
Compared to Bitcoin spot ETFs, MicroStrategy’s uniqueness lies in its financing methods. ETF investors need to actively purchase ETF shares, while MicroStrategy raises funds through equity, unsecured or secured debt, convertible bonds, and structured notes to directly increase Bitcoin holdings. This “selling stock for financing” model allows the company to actively raise funds to achieve long-term strategic Bitcoin holdings.
MicroStrategy’s valuation model relies on market value premium rates, increasing Bitcoin holdings through diluted share capital financing to raise per share BTC holdings and boost the company’s market value. Here is a detailed analysis of this model:
Assuming a Bitcoin price of $72,000, with MicroStrategy holding 252,220 BTC, the total holding value is approximately $18.16 billion. With the current company market value at $48 billion, MicroStrategy’s market value is 2.64 times the total Bitcoin holding value, resulting in a current premium rate of 164%.
If MicroStrategy plans to finance $10 billion by issuing new shares, the total share capital will increase to 12,083 shares. In this scenario, the company can purchase approximately 138,889 Bitcoins with $10 billion at a price of $72,000, raising total holdings to 391,109 Bitcoins. This would increase per share BTC holdings to 32.37, a 28% increase.
Furthermore, if MicroStrategy issues 87.5% more shares to raise $42 billion, the total share capital would increase to 18,750 shares. With this capital, the company could acquire about 583,333 Bitcoins, raising total holdings to 835,553 Bitcoins. At this point, per share BTC holdings would increase to 44.23, about a 75% increase.
If this thickening effect is achieved within three years, the annual average thickening would be 25%.
In a bullish market environment, MicroStrategy’s valuation model and high premium rate financing model create a self-enhancing positive feedback loop. The higher the premium rate, the larger the financing amount, increasing per share BTC holdings and further boosting the company’s market value. This market effect rolls like a snowball, especially when Bitcoin prices are expected to rise to $90,000-$100,000. With the high premium rate financing, MicroStrategy might continue accelerating under the guidance of a high premium rate.
Michael Saylor’s bet and the market’s response seem to foreshadow a subtle game between traditional finance and digital assets. In this dual comparison of capital and technology, will MicroStrategy achieve a financial revolution or just a passing fad? What we witness might be a harbinger of future financial change.