MicroStrategy Madness

On November 20th, MicroStrategy (MSTR) was one of the most traded stocks in the US, finishing second just behind NVDA on its own earnings day, at one point even surpassing the market giant. It’s been years since a stock has out-traded Nvidia or Tesla, so what’s behind the madness?

Before becoming the Bitcoin behemoth we know today, Michael Saylor and a few others founded MicroStrategy in 1989 as a business intelligence and analytics software company. After many ups and downs through the years, MSTR continues to operate its legacy software businesses but has since transformed into the largest corporate holder of Bitcoin and the “world’s first Bitcoin Treasury Company”.

In late 2020, citing growing concerns about the weakening of fiat currencies through quantitative easing, expansive government fiscal spending, and global economic uncertainties, Saylor saw Bitcoin as a compelling alternative. Recognizing its potential as a superior store of value and its advanced technological characteristics, MSTR made a bold move, converting $250 million of corporate cash reserves into over 21,000 Bitcoin.

This pivot fundamentally reshaped MSTR’s identity, transforming i

Terrific write up, but doesn’t really address the core question as to why people are paying the premium to NAV for the equity when the premium to NAV is itself only justified by the premium to NAV continuing to exist in a loop of circular logic. At a 4x premium, people are betting that the BTC backing each share is going to increase by more than 4x from today’s level or they’re better off just putting the equivalent investment in BTC directly. Either the market is being stupid (very possible!) or the bonds are playing a bigger role in justifying the premium to NAV.

There could be many reasons, like the ones I mentioned, that the premium exists, but we’ll never know the exact psychology or the “why” behind people’s decision to keep paying it. They must simply believe that BTC will continue to appreciate and MSTR will continue to raise cash and own more BTC.

As the saying goes, the market can remain irrational longer than you can stay solvent.