bullish

Bitcoin

MicroStrategy’s (MSTR) net asset value premium to its Bitcoin holdings has risen to its highest in three years, reaching about 270% as of Oct. 14, according to <a data-ct-non-breakable="null" href="https://www.mstr-tracker.com/" rel="nofollow noopener" target="_blank" text="null" title="https://www.mstr-tracker.com/">MSTR-Tracker</a>.
<figure>
 <img alt="'Like Bitcoin on steroids' — Why is MSTR stock trading at a 2.7x premium?" src="https://s3.cointelegraph.com/uploads/2024-10/019289b9-1e0a-70a8-a38b-d6dfe007c338" title="">
 <figcaption style="text-align: center;">
 MicroStrategy NAV premium to its Bitcoin holdings. Source: MSTR-Tracker.com
 </figcaption>
</figure>
The NAV premium is measured after dividing MSTR’s market capitalization by the value of its Bitcoin holdings. The higher NAV shows that holding a share of MSTR provides investors a yield 2.7 times higher than holding Bitcoin (<a data-ct-non-breakable="null" href="https://cointelegraph.com/bitcoin-price" rel="nofollow noopener" target="_blank" text="null" title="https://cointelegraph.com/bitcoin-price">BTC</a>) directly.
Key factors explaining why the MicroStrategy stock is trading at a premium to its Bitcoin holdings include leveraging and free cash flows from its software business.
<h2 id="strong-mstr-leverage-creates-premium-vs-bitcoin-holdings-strong">MSTR leverage creates premium vs. Bitcoin holdings</h2>
MicroStrategy uses leverage, using financial instruments such as at-the-market equity offerings (ATM) and <a data-ct-non-breakable="null" href="https://cointelegraph.com/news/microstrategy-raises-1-billion-bitcoin-purchase" rel="" target="_self" text="null" title="https://cointelegraph.com/news/microstrategy-raises-1-billion-bitcoin-purchase">convertible senior notes</a> to amplify its Bitcoin holdings. 
As of Oct. 14, it held about $3.91 billion in long-term debt, with a market cap of $35 billion. This shows that its assets are 1.1 times leveraged relative to its equity. 
In simpler terms, for every $1 of equity, MSTR controls $1.1 of assets (mainly Bitcoin), through its use of debt. 
Related: <a data-ct-non-breakable="null" href="https://cointelegraph.com/news/leveraged-microstrategy-etfs-break-400m-hot-sauce-wars-heat-up" rel="" target="_self" text="null" title="https://cointelegraph.com/news/leveraged-microstrategy-etfs-break-400m-hot-sauce-wars-heat-up">Leveraged MicroStrategy ETFs break $400M as ‘hot sauce arms race’ heat up</a>
Suppose Bitcoin’s value increases by 10%. Without leverage, MicroStrategy’s Bitcoin holdings would also increase by 10%, and so would its stock price. But because MSTR uses debt, it controls more Bitcoin than it could with its own money (equity). 
<figure>
 <img alt="'Like Bitcoin on steroids' — Why is MSTR stock trading at a 2.7x premium?" src="https://s3.cointelegraph.com/uploads/2024-10/019289fd-79ef-756d-9669-40f32c9abd58" title="">
 <figcaption style="text-align: center;">
 Source: <a data-ct-non-breakable="null" href="https://x.com/rajatsonifnance/status/1845539125178540165" rel="nofollow noopener" target="_blank" text="null" title="https://x.com/rajatsonifnance/status/1845539125178540165">X</a>
 </figcaption>
</figure>
So when Bitcoin goes up 10%, the company’s overall asset value increases more—about 11% instead of 10%, suggesting that MSTR’s NAV premium comes from leverage.
<h2 id="strong-microstrategy-s-software-business-strong">MicroStrategy’s software business</h2>
Although often overlooked, MicroStrategy’s software business <a data-ct-non-breakable="null" href="https://cointelegraph.com/news/microstrategy-q2-earnings-reveals-bitcoin-stockpile-14-7-billion#:~:text=Notably%2C%20the%20firm%20revealed%20a,Source%3A%20MicroStrategy." rel="" target="_self" text="null" title="https://cointelegraph.com/news/microstrategy-q2-earnings-reveals-bitcoin-stockpile-14-7-billion#:~:text=Notably%2C%20the%20firm%20revealed%20a,Source%3A%20MicroStrategy.">generated</a> about $111 million in revenue in the second quarter, with steady subscription revenue growth. That provides a cash flow base to service its debt and sustain its BTC acquisition strategy. 
<figure>
 <img alt="'Like Bitcoin on steroids' — Why is MSTR stock trading at a 2.7x premium?" src="https://s3.cointelegraph.com/uploads/2024-10/019289ff-e27c-7c5f-9c7b-dfd528758a4c" title="">
 <figcaption style="text-align: center;">
 MicroStrategy’s Q2 earnings key metrics. Source: Bloomberg 
 </figcaption>
</figure>
While the software side is not the primary focus, it contributes to MSTR’s overall ability to operate its Bitcoin strategy without selling BTC to cover debt obligations, thereby maintaining its BTC holdings and NAV premium.
<h2 id="strong-bitcoin-macro-strategy-liked-by-mstr-investors-strong">Bitcoin “macro strategy” liked by MSTR investors</h2>
Lastly, market confidence in CEO Michael Saylor’s&nbsp;aggressive BTC acquisition strategy is high. Since adopting Bitcoin as its primary treasury asset in August 2020, MSTR has consistently outperformed Bitcoin and most traditional stocks. 
For instance, MSTR has increased by 1,700% since purchasing its first Bitcoin. Meanwhile, BTC’s returns in the same period have been around 500%, prompting analyst Maartunn to call it “Bitcoin on steroids.”
<figure>
 <img alt="'Like Bitcoin on steroids' — Why is MSTR stock trading at a 2.7x premium?" src="https://s3.cointelegraph.com/uploads/2024-10/01928a06-c697-7b6d-a15c-928cda1c44aa" title="">
 <figcaption style="text-align: center;">
 MSTR vs. BTC performance since MicroStrategy’s first acquisition in August 2020. Source: <a data-ct-non-breakable="null" href="https://x.com/JA_Maartun/status/1845569989429883263" rel="null" target="null" text="null" title="https://x.com/JA_Maartun/status/1845569989429883263">X</a>
 </figcaption>
</figure>
Top US stock indexes, such as the S&amp;P 500 and the Nasdaq Composite, have delivered returns of about 80% and 70%, respectively.
Investors are willing to pay a premium for MSTR because they expect the company to continue increasing its BTC holdings over time, particularly if BTC enters another bullish phase.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

'Like Bitcoin on steroids' — Why is MSTR stock trading at a 2.7x premium?

Table of Contents

Cointelegraph

Other articles published on Oct 14, 2024

IntelMarkets vs. Uniswap vs. Bonk: Which Altcoin Is Set for a Mind-Bending 3000% Ride

The Simpsons’ Take on Bitcoin and XRP: Is It Time to Pay Attention?

Ethereum Founder Vitalik Buterin Publishes New Paper Outlining Potential Ethereum Upgrades

Qubetics Makes Life Easier for dApps Developers as Chainlink and XRP Brave Market Challenges

Bitwise Files for First-Ever XRP ETF with the SEC: What You Need to Know

WIF put SOL meme coins on the map, ETH meme coin Cutoshi brings DeFi to the masses

Join our free newsletter for daily crypto updates!