In an era where technology is reshaping everything from communications to finance, one asset stands poised to transform the very foundation of capital markets: Bitcoin. Michael Saylor, the founder of MicroStrategy, has long been an advocate for Bitcoin, both as a personal investment and as a strategy for corporate treasuries. He has pioneered a Bitcoin-focused approach at MicroStrategy, turning the company into one of the largest holders of Bitcoin among public companies. Saylor’s vision of Bitcoin as digital capital has implications not only for companies and investors but for the future of global finance itself.

Bitcoin: The Most Significant Asset of the 21st Century

Saylor’s assertion that Bitcoin could grow from a trillion-dollar asset to a hundred trillion-dollar asset underscores its immense potential. As the world transitions from traditional forms of capital to digital assets, Bitcoin stands out due to its unique characteristics: scarcity, decentralization, and the fact that its supply is unaffected by demand. This makes Bitcoin an attractive long-term store of value – something that traditional fiat currencies and assets simply cannot match.

Unlike other investments, Bitcoin is not controlled by any central authority, nor is it subject to inflationary pressures, making it an ideal hedge against traditional financial risks. As Saylor puts it, “The best way to make money is to capitalize private/public companies with Bitcoin” – a strategy that leverages Bitcoin’s long-term appreciation to unlock significant value in businesses.

Corporate Adoption: Overcoming Barriers

While Bitcoin’s potential is clear, corporate adoption has been slow due to several key challenges. Saylor identifies three major barriers to Bitcoin adoption by corporations:

1. Fair Accounting: Until recently, accounting rules made Bitcoin investments appear risky, as companies were required to mark down the value of their Bitcoin holdings based on the market price. This led to concerns among investors and management, as fluctuations in Bitcoin’s price could negatively impact a company’s balance sheet. However, fair-value accounting, which will come into effect in 2025, could change this dynamic, allowing companies to report Bitcoin at its actual market value rather than forcing them to account for its price volatility.
2. Regulatory Clarity: Regulatory uncertainty has also been a major deterrent for companies considering Bitcoin as a treasury asset. The approval of spot Bitcoin ETFs in 2024 was a significant milestone in legitimizing Bitcoin as a viable asset class for institutional investors, which is expected to pave the way for more corporate adoption.
3. Banking Support: Most major banks still do not support Bitcoin transactions, which limits the ability of corporations to integrate Bitcoin into their operations. Without proper banking infrastructure, companies face hurdles in managing Bitcoin assets and conducting transactions in the digital asset space.

MicroStrategy: A Case Study in Bitcoin Treasury Strategy

Saylor’s approach at MicroStrategy has demonstrated the success of adopting Bitcoin as a corporate treasury strategy. By converting a significant portion of its treasury into Bitcoin, MicroStrategy has outperformed many other tech giants. The company’s Bitcoin holdings have appreciated significantly over time, serving as a hedge against inflation and creating immense value for shareholders.

This success has inspired other companies to explore similar strategies, recognizing the value in holding Bitcoin long-term as a store of wealth rather than relying solely on traditional fiat currency holdings. MicroStrategy’s move has also sparked discussions about how other companies could integrate Bitcoin into their financial strategies, especially when dealing with large cash flows or facing inflationary pressures.

In a recent podcast with Onramp Media, Saylor described his vision for MicroStrategy as a major Bitcoin company as follows,

1. Bitcoin Finance Company Vision: Saylor suggests that the future for MicroStrategy is to become a leading Bitcoin financial institution, potentially as a “Bitcoin bank” or finance company.
2. Capital Strategy: He mentions a potential scenario where MicroStrategy could raise $20 billion in preferred stock, $10 billion in debt, and another $50 billion through structured debt instruments. This could result in the company holding between $100-150 billion in Bitcoin.
3. Premium and Growth Potential: Saylor highlights that MicroStrategy trades at a 50% premium, with a goal to grow the company’s Bitcoin holdings and its value. He envisions the company reaching a 100% premium, resulting in a valuation between $300-400 billion.

Overall, the strategy focuses on leveraging Bitcoin holdings, raising capital, and growing the company into a large-scale player in the market.

Saylor has not only advocated for Bitcoin as a corporate treasury asset but also pioneered the concept of BTC Yield, showcasing how companies can generate returns through strategic Bitcoin accumulation.

Bitcoin isn’t just a store of value for Saylor – it’s a transformative asset class. His vision revolves around Bitcoin as “digital capital,” a decentralized, programmable, and scarce asset poised to fundamentally reshape capital markets.

The Significance of BTC Yield – The Best MSTR KPI

MicroStrategy’s use of BTC Yield as a key performance indicator (KPI) has set a new standard for measuring corporate performance in the digital asset space. BTC Yield is defined as the percentage change in the ratio of the company’s Bitcoin holdings relative to its diluted shares. This metric highlights how strategic capital management – particularly through convertible debt and equity issuance—can amplify shareholder value without selling Bitcoin.

In the recent quarter (July to September 2024), MicroStrategy reported a BTC Yield of 5.1% quarter-to-date and 17.8% year-to-date, a strong indication of its effective Bitcoin accumulation strategy. The company utilizes methods such as issuing convertible senior notes to raise capital, which it uses to purchase more Bitcoin, resulting in accretive growth. Also, MSTR included a target Bitcoin Yield for future years in their Q2 earnings report as shown below.

mNAV – Another Key MSTR KPI

MSTR’s mNAV (market-adjusted Net Asset Value) refers to the value of MicroStrategy’s Bitcoin holdings adjusted to reflect the market value of the company. The formula often used to approximate mNAV is:

mNAV = Market Capitalization – (Stock Price Premium Over Bitcoin Holdings Value)

Here’s a step-by-step breakdown of how it’s typically calculated:

1. Total Bitcoin Owned by MicroStrategy (BTC Holdings): The number of Bitcoins held by MSTR.
2. Value of Bitcoin Holdings: Multiply the total BTC owned by MicroStrategy by the current market price of Bitcoin.
3. Liabilities: Subtract liabilities, especially any debt used to buy Bitcoin, from the total value.
4. Market Capitalization of MSTR: The total market value of MicroStrategy’s outstanding shares.
5. Premium (Market Cap / Bitcoin Value): This ratio helps to understand how much higher the stock is trading compared to the value of the Bitcoin holdings.

To calculate mNAV, subtract the premium from the company’s market capitalization and add the intrinsic value of the business excluding BTC (if any is available). The latest calculation is shown below.

It essentially reflects the adjusted value of MSTR stock accounting for Bitcoin holdings and the premium at which the company trades due to its Bitcoin exposure.

MSTR Cyclic BTC Strategy

A cyclic strategy employed by MicroStrategy (MSTR) under Michael Saylor, where the company continually uses its Bitcoin holdings to enhance its market position:

1. MSTR Purchases Bitcoin – The company buys Bitcoin, directly linking its balance sheet to BTC.
2. Stock Becomes More Volatile – As Bitcoin’s price is volatile, MSTR stock inherits this volatility.
3. Implied Volatility (IV) Increases – The increased volatility raises the implied volatility of MSTR stock, enhancing the value of its options.
4. Monetize Implied Volatility – MSTR capitalizes on the increased options value by selling calls or issuing convertible debt.
5. High Implied Volatility Enables Low APR Borrowing – The heightened volatility enables MSTR to borrow at lower interest rates (APR).
6. Balance Sheet Optimization – The company’s balance sheet is now composed of both Bitcoin and low-cost debt.
7. Stock Becomes Leveraged BTC Play – MSTR’s stock acts as a leveraged play on Bitcoin, driving the cycle to start again with more Bitcoin acquisitions.

The implication is that as long as Saylor continues this Bitcoin-leveraged strategy effectively, MSTR could potentially become a trillion-dollar company in the future, especially if Bitcoin prices rise substantially. The focus is on the continuous cycle of increasing leverage, volatility, and financial engineering to grow the company’s market cap higher.

Bitcoin as Digital Capital: A Transformative Force

Bitcoin’s transformative potential extends far beyond corporate treasuries – it has the power to reshape entire financial systems. Saylor compares Bitcoin to other historical innovations, such as electricity or fire, which fundamentally changed the way businesses operate and capital markets function. Just as electricity powered the industrial revolution, Bitcoin could power the next phase of economic growth and global capital markets.

The concept of Bitcoin as “digital capital” introduces the idea of a global, programmable form of money that can be transferred instantly, 24/7, across borders without intermediaries. This contrasts sharply with traditional capital markets, which are slow, fragmented, and prone to inefficiencies. With Bitcoin, we can envision a world where transactions are faster, more transparent, and more efficient – creating a more seamless integration of global finance.

Custody Solutions: Enabling Institutional Adoption

For Bitcoin to achieve widespread adoption, particularly by institutions, reliable and secure custody solutions are essential. Saylor emphasizes that institutions need custodians who can manage Bitcoin holdings efficiently and securely. Over time, the emergence of regulated custodians has allowed larger institutions to engage with Bitcoin more confidently.

This trend is likely to accelerate as financial giants like BlackRock and Fidelity push for regulatory clarity and better custody options. Additionally, Saylor believes that if the U.S. Securities and Exchange Commission (SEC) repeals SAB 121 (an accounting standard), this could encourage banks to offer crypto custody services, further boosting Bitcoin adoption.

Bitcoin Yield: Unlocking Value Through Financial Strategies

Saylor’s innovative approach to Bitcoin yield offers another avenue for growth. Companies like MicroStrategy have employed strategies to generate yield through Bitcoin arbitrage. By issuing convertible debt or equity at a premium and using the proceeds to buy more Bitcoin, companies can profit from the difference as the asset appreciates over time.

This method allows companies to generate Bitcoin yield without selling the asset, essentially creating a self-sustaining cycle of Bitcoin acquisition and value appreciation. This “BTC yield” model is particularly attractive for companies that want to grow their Bitcoin holdings while minimizing risk and avoiding the volatility of selling Bitcoin.

For Bitcoin miners and companies with significant cash flows, such as those in the $100 million range, acquiring Bitcoin and holding it long-term offers a way to generate yield without exposing themselves to counterparty risks or the complexities of short-term trading.

Institutional Adoption: The Road Ahead

The adoption of Bitcoin by institutions is gaining momentum, with key developments such as the approval of Bitcoin ETFs and the growing interest from banks and asset managers. In the coming years, we can expect to see more corporations and financial institutions adding Bitcoin to their balance sheets, following the lead of MicroStrategy and other forward-thinking companies.

As more institutions adopt Bitcoin, the market will become deeper, and Bitcoin will continue to solidify its place as a global reserve asset. Saylor argues that Bitcoin’s exponential growth is still in its early stages compared to the overall size of global wealth. With institutional adoption and regulatory clarity, Bitcoin could continue to grow into a hundred trillion-dollar asset, fundamentally transforming the way companies and individuals store and manage wealth.

Conclusion: Focusing on Bitcoin as the Future of Finance

Michael Saylor’s message is clear: the future of finance is digital, and Bitcoin is at the center of this transformation. As a scarce, decentralized, and appreciating asset, Bitcoin offers unique advantages for both individuals and corporations. By focusing on Bitcoin and adopting it as a core strategy, investors and companies can position themselves to benefit from its long-term growth potential.

Rather than seeking out alternative investments or diversifying into less reliable assets, Saylor advocates for a laser-focus on Bitcoin. The idea of “digital capital” is still in its infancy, and those who recognize its value early on will be well-positioned to reap the rewards of this transformative asset.

As we move towards a more Bitcoin-centric world, the opportunities for growth and innovation are limitless, and the future of global capital markets is bright.

Personal take on MicroStrategy (Not a financial advice):

MicroStrategy is a strong addition to a balanced portfolio but should be approached with strategic timing and awareness of the premium to NAV and the methods the company uses to accumulate more Bitcoin.

Let’s take a look at MSTR’s performance compared to some of the top stocks and indices on Wall Street.

However, MSTR’s high returns are accompanied by significant risk and volatility.

MicroStrategy Bullish Stance:

• Understand MicroStrategy’s business strategy, which is to use its capital to acquire Bitcoin (BTC) and hold it long-term.
• MSTR shows long-term bullishness despite short-term bearishness around the launch of Bitcoin ETFs in January 2021, which temporarily impacted the MSTR share price.

MicroStrategy’s Business Strategy:

• MicroStrategy plans to never sell its Bitcoin holdings and will continue to accumulate Bitcoin using three main methods:
  • Cash flow from operations (about $500M in annual revenue, using any surplus to buy Bitcoin).
  • Issuing debt (borrowing money to buy more Bitcoin).
  • Selling shares (to generate funds for purchasing Bitcoin).

• The ultimate goal is to increase Bitcoin per share held by MicroStrategy shareholders, which is a unique model in the market.

Premium to NAV (Net Asset Value):

• The current market capitalization of MicroStrategy is much higher than the value of Bitcoin on its balance sheet (about 3x premium).
• While some people hope the premium will expand indefinitely (e.g., to 12x), this is not in MicroStrategy’s business interest.
• The strategy is to allow the premium to expand moderately (e.g., 2-3x) and then harvest that premium by issuing shares or borrowing money to buy more Bitcoin, which benefits shareholders.

Capital Pools and S&P 500 Potential:

• As MicroStrategy grows, it could potentially be included in the S&P 500, attracting billions in capital from institutional investors.
• Additionally, there will be funds that can only invest in corporate debt, making MicroStrategy an attractive option due to its Bitcoin assets.

Strategic Timing for Investors:

• Investors should be mindful of when they buy MicroStrategy shares, as the share price tends to oscillate with the Bitcoin price and premium.
• Buying at the right time (during periods of premium contraction) is key for maximizing returns, as shares may dip temporarily after new capital raises or share offerings.

Misconceptions and Criticism:

• It’s not logical that MicroStrategy should allow the premium to expand indefinitely (e.g., to 12x) as a misunderstanding of the business model.
• People who have small stakes in MicroStrategy may not be as informed or invested as they think, and their opinions on the company may not carry much weight.

Investor Strategy:

• Retail investors should focus on understanding the business strategy and should consider timing their purchases based on the current premium and future potential.
• Buying at a higher premium (e.g., 3x) might not be ideal for fresh capital, but those with a long-term perspective may still choose to hold, especially if they believe in the company’s strategy.

Overall Take:

MicroStrategy is a strong addition to a balanced portfolio but should be approached with strategic timing and awareness of the premium to NAV and the methods the company uses to accumulate more Bitcoin.

Also read, Arbitrage Trading Strategies: MSTR and Bitcoin Cointegration Opportunities

Join Crypto Exponentials Newsletter. Gain Access To $10k/Month Challenge!

Access Blockchain Educational Resources 👇

It’s the perfect time to invest in your career! As industries evolve, staying ahead with the latest skills is crucial. That’s why Crypto Exponentials in partnership with 101 Blockchains is offering an **exclusive seasonal sale** on its world-class training programs.

Whether you’re aiming to master blockchain fundamentals, become a certified professional, or enhance your skills in NFTs, DeFi, and Web3, this is your chance to upskill and stay competitive.

Don’t miss out on this limited-time opportunity to boost your career!

👉 Check out the sale here