MicroStrategy’s Stock Surges as Premium and Bitcoin Holdings Increase
MicroStrategy (MSTR) has been making waves in both the U.S. stock market and the crypto market recently. The company’s stock price has surged from $120 a week or two ago to $247 currently, maintaining a premium to Bitcoin.
Many market participants attribute MSTR’s surge to its “leveraged Bitcoin” strategy. However, this doesn’t fully explain the sudden increase in MSTR’s premium, considering the company’s fundamentals of “issuing bonds and buying currency” have remained unchanged.
The recent surge in MSTR’s premium is due to another secret weapon: premium issuance. This strategy involves selling MSTR shares at a premium to their net asset value (NAV) and using the proceeds to purchase more Bitcoin. This creates a reflexive flywheel effect, where the additional issuance actually makes MSTR more valuable.
MicroStrategy has been accumulating Bitcoin through debt issuance since 2020, with the goal of coping with challenges such as declining cash returns and the depreciation of the U.S. dollar. The company has used long-term bonds in the capital market to raise funds and purchase Bitcoin, adding it directly to the company’s balance sheet.
As of now, MicroStrategy holds 1.2% of the total circulating supply of Bitcoins, making it the publicly listed company with the most Bitcoins in the world. The correlation coefficient between MSTR stock price and Bitcoin price has recently surged to 0.365, an all-time high.
The premium issuance strategy has allowed MicroStrategy to purchase more Bitcoin with each share of MSTR sold, far exceeding the amount of Bitcoin actually represented by the individual stock. This has created a self-reinforcing positive feedback loop, attracting more incremental funds and generating a higher NAV premium.
Michael Saylor, CEO of MicroStrategy, believes that MSTR’s reflexive flywheel model has strong capital operation potential and could be a model for other companies to follow, especially in resource-intensive or capital-intensive industries.
As this mechanism becomes more widely used, it will undoubtedly tie the cryptocurrency market and the U.S. stock market closer together, introducing a large amount of overflow liquidity from U.S. stocks to the crypto market while intensifying the risk of volatility in the U.S. stock market.