Few have captured the imaginations of the cryptocurrency market like Michael Saylor, CEO of MicroStrategy, as a Wednesday morning guest on CoinDesk TV.
His company’s bitcoin purchases, first announced in August, validated a key narrative driving the current bull market: “institutions” were joining the fray (companies that meet the cryptographic definition of an institution can be much smaller in size, and commercial rather than financial (on mission, than that of Wall Street). It took a few more months for bitcoin prices languishing around the $ 10,000 level before really taking off in the last quarter of 2020, but after that it hasn’t looked back. Well, at least not yet.
Lawrence Lewitinn, CFA is CoinDesk’s Editor-in-Chief for Global Financial Markets and a former fixed income, currencies and commodities trader who began his career on Wall Street nearly three decades ago. This article first appeared in First Mover, CoinDesk’s daily marketplace newsletter. Subscribe here.
MicroStrategy’s round of bitcoin purchases was a triumph. As Saylor noted in a recent tweet, the company has so far spent $ 2.186 billion to purchase a total of 90,859 BTC. That puts its average cost at $ 24,063. At current prices, MicroStrategy’s bitcoin was worth $ 4.4 billion as of March 2.
A $ 2.2 billion gain in value for a company’s balance sheet asset that was worth around $ 1 billion in the previous three years is generally considered a good thing.
Back of the envelope
Still, it’s worth noting that if MicroStrategy bought bitcoin at $ 24,063, which now looks like a good deal, that’s a different story for anyone buying MSTR shares now.
The company’s market capitalization is now around $ 7.2 billion. As of March 2, $ 4.4 billion of its assets were in bitcoin. Around the time it first announced its bitcoin purchases, MicroStrategy’s market cap was only $ 1.3 billion. To buy all that bitcoin it now owns, the company first used cash, somewhere for around $ 425 million. In recent months he has issued a total of $ 1.7 billion in convertible notes which, if turned into equity, could add a few million shares to the nearly 10 million already in circulation (that is, is another discussion).
Doing math on a napkin – adding the value of bitcoin and the underlying company while subtracting debt and money spent (to avoid double counting) – the sum is $ 3.575 billion. Round that off to $ 3.6 billion and that’s still only half of the current market cap.
The remaining $ 3.6 billion needed to get a valuation of $ 7.2 billion can be explained as… magic. Well, at least to some investors who are buying the stocks now. Otherwise, that $ 3.6 billion bounty is a bet on a value that has yet to be unlocked. It’s a safe bet that Michael Saylor and the rest of the management are able to do some amazing things with the company, like buying a lot of bitcoin before everyone else.
So far, this bet has paid off for those who were lucky enough to enter at the right time. MicroStrategy shares have significantly outperformed the price of bitcoin since the start of September.
Tfw no ETF
Indeed, the argument put forward for buying MicroStrategy shares currently is that it is one of the few ways for institutional investors otherwise barred from entering bitcoin due to regulatory issues (such as lack of funds. Bitcoin Exchange Traded) to gain exposure to cryptocurrencies. However, this is a very, VERY expensive way to do it.
Indeed, paying a $ 3.6 billion bounty for MicroStrategy’s $ 4.4 billion leveraged bitcoin treasure trove is equivalent to roughly $ 88,000 per bitcoin, more than triple the $ 24,063 the company paid. to acquire it during the last few months. Remember, buying MicroStrategy shares is not the same as buying shares in August.
So if someone buys shares of MicroStrategy just for Bitcoin gambling, that person (or “institution”) would pay almost double for bitcoin and get a flat share.
Will that premium still be there if a Securities and Exchange Commission headed by Gary Gensler decides to approve a Bitcoin ETF? Who knows? Stranger things have happened.
The title could well continue to rise. In this environment, anything can happen. If the shares of a declining video game retailer may skyrocket, what’s stopping investors from wanting to pay double for Bitcoin?