Microstrategy ($MSTR) is a publicly-traded business intelligence company founded by Michael Saylor. While he was CEO, he led the company to start buying and holding Bitcoin for the company's treasury. Last year (2022), Saylor stepped down as CEO to basically lead the Bitcoin education and direction of the company under a position titled Executive Chairman. However, the company is still buying a considerable amount of Bitcoin, and has been announcing their purchases every quarter.
To date, the company has disclosed amassing 158,245 at an average purchase price of around $29,000. I invested in this company when I noted that its Market Cap value of the company was lower than the Bitcoin held by the company. I started tracking some Bitcoin proxies that are available to purchase in the equities market back in January. For your convenience, here is a link to a spreadsheet of the companies holding Bitcoin and their premium/discount.
Today, I decided to crunch some numbers to gauge MSTR's impact on the Bitcoin market. Below is a table from BuyBitcoinWorldWide that tracks the purchases by MSTR since August 2020. My understanding is MSTR essentially allocates all of its profit into Bitcoin.
The purchases made this year (through September 24 2023) amount to 25,745 bitcoin. Since that date marked the 267th day of the year, this averages out to 96.4 Bitcoins purchased per day. Currently the bitcoin network makes 900 bitcoin per day, so MSTR is gobbling up 10.7% of the daily production. That is a significant force in the market.
MSTR is purchasing these Bitcoins with USD, so as the price of Bitcoin rises, they will be buying proportionally fewer Bitcoins. However, this is the benefit of Dollar-Cost Averaging (DCA) into Bitcoin, as they were purchasing all through the lows of the exposure of the crypto business fraud of 2022. MSTR has really added to their stack of bitcoin substantially this year.
On my Bitcoin Holders table, to find the btc premium or discount of a company, I simply subtract the USD value of held bitcoin from the company's market cap and divide this by the company's market cap.
As I type this, $MSTR is $420, BTC is $34,378, and if MSTR was worth only the 158,245 bitcoin, the stock would be $450. This is a 6% discount to buying spot bitcoin.
My method for valuing the company based only on its Bitcoin holdings is admittedly simplistic. It doesn't account for the liabilities the company has for repaying loans and bonds used to purchase a large quantity of Bitcoin. However, these were locked in during periods of ridiculously low interest rates, and will be paid back with increasingly inflated currency. I think these were brilliant financial moves provided the company can manage the repayments. My simple assessment also ignores the risk of mismanagement of the company/bad public sentiment, etc. Nevertheless, investing in the stock is also a bet on owning more Bitcoin in the future. MSTR is continuing to add to their stack, so buying the stock today should yield even more Bitcoin in the future, assuming the company maintains its performance and USD earnings.
If you have considered buying MSTR, it may be worth your time to consider the bitcoin premium-to-discount ratio. During the bull run in 2021 the company was worth more (even much, much more) than the bitcoin held by the company.
Once the BlackRock and other ETFs are launched, MSTR will not be one of the only plays on bitcoin, and I anticipate that there will be some additional volatility in the stock. I think there will be some arbitrage opportunities between the proxies and the spot ETF, and these will be worth taking advantage of as well.
Want to learn more about Bitcoin than I have written? MicroStrategy provides a wealth of resources at Hope.com .
I am long MSTR, but will consider selling or covering when it is at a premium to underlying bitcoin price, especially if a spot ETF is available for purchase. I also advise everyone to hold your own bitcoin in self-custody, if possible. Self-custody is superior to any proxy or exchange.
EDIT:
One day after I posted this, Microstrategy announced they purchased an additional 155 BTC for $5.3M, which is an average buy price of $34,193. I have updated my Bitcoin Holders spreadsheet linked above. This new DCA into Bitcoin changes their purchases made this year (through October 31, 2023) amount to 25,900 bitcoin. Halloween (aka Bitcoin White Paper Day) is the 304th day of the year, and this averages out to 85.2 Bitcoins purchased per day. Currently the bitcoin network makes 900 bitcoin per day, so MSTR is buying 9.5% of the daily production. This remains a significant force in the market. Also, Microstrategy's large buys seem to happen quarterly, and I suspect they will announce another larger purchase towards the end of the 4th quarter.