Analyzing the MSTR Premium

Strategy (NASDAQ: MSTR), a business intelligence firm previously recognized as MicroStrategy, is currently valued at $73 billion, approximately 1.6 times the worth of its bitcoin holdings. This premium, referred to as the ‘MSTR premium,’ has led to a variety of interpretations and skepticism within the investment community. Here are three compelling reasons that support this premium, especially in times when expectations for bitcoin pricing are rising.

1. Leveraging Future Bitcoin Returns
Strategy utilizes capital raised through equity and debt to invest in bitcoin, generating returns that exceed their cost of capital. Investors assess and value this potential future revenue, contributing to MSTR’s market valuation.

2. Intelligent Capital Issuance
The company effectively leverages convertible debt, creating value for its shareholders through strategic equity issuance and benefiting from the volatility associated with bitcoin, thus enabling an increment in the bitcoin quantity held per share.

3. Exploiting Market Growth
The MSTR structure is positioned to capitalize on the expanding nature of cryptocurrencies, with a tendency for bitcoin’s price to appreciate over time, further justifying the premium.

For skeptics, consider this thought experiment: If there was a bank account yielding a 69% interest rate, one might offer significantly more than $100 for such an account. This mirrors the current situation with MSTR and its impressive rate of increasing BTC per share since the 2020 investment began. Expectation of a 15%+ increase this year reaffirms investor confidence in the MSTR premium continuing.

MSTR’s premium to NAV Source: MSTR-Tracker.com, GSR

Conclusion

The premium attached to MSTR is maintained by investor belief in its future performance. As risks persist, understanding the dynamics behind the premium remains crucial for current and potential investors.