TL; DR
-
The genius of MicroStrategy’s BTC treasury = $MSTR buys BTC → the more they have, the more exposure they get to the price increase → what attracts investors → what pushes their stock price up → (repeat).
Full story
So Japan’s Metaplanet just bought $1.2 million worth of Bitcoin for its corporate treasury, and that got us thinking…
What’s so great about this ‘corporate Bitcoin strategy’?
To do that, we looked at the man who created it, Michael Saylor, and his company, MicroStrategy ($MSTR).
Let’s start with some statistics:
-
Over the past decade, Bitcoin has risen ~10,000%
-
$MSTR started buying BTC in August 2020, with an average purchase price of $35,000 (meaning they’ve made ~80% returns so far)
-
In that same time, the S&P 500 (an index of the 500 largest US companies) has risen 63%
So…
If MicroStrategy had just invested in a fund that tracked the S&P 500, they would have had a MUCH safer margin of error (Bitcoin is highly volatile, the S&P 500 is not).
So why isn’t this being called the dumbest financial move of all time?
Simply put, $MSTR’s Bitcoin strategy creates a flywheel effect, while buying the S&P 500 does not.
Look, no one is going to buy MicroStrategy stock because the company owns S&P 500 stock.
But when Saylor launched $MSTR’s Bitcoin strategy, it was one of the few ways stock traders could do so safe/easy gain exposure to Bitcoin’s upward price movements (from a regulatory perspective).
So suddenly, $MSTR stock became a magnet for investor dollars – and with it, its market cap increased.
Then, and this is the wildest part…
$MSTR started issuing/selling new shares, diluting existing shareholder value and using the money to buy more Bitcoin…
Dilute the value of existing shares, by making and selling more of them? This usually leads to a share price falling.
But in the case of MicroStrategy, yes increased stock value, by – get this – 10x over about four years.
The flywheel that drives this increase works as follows:
MSTR buys Bitcoin → the more Bitcoin they have → the more exposure they have to Bitcoin’s price increase → which attracts more investors → which increases their stock price → which allows them to buy more Bitcoin.
(Rinse/repeat).
And all the while, $MSTR has its traditional software business in place to weather any storms in Bitcoin’s price swings.
Now, here’s the icing on the cake:
As other companies, such as Metaplanet, begin to follow suit, this will only help stabilize and push Bitcoin’s price higher over time.
And MicroStrategy (along with all other BTC holders) will benefit greatly from this growth.
Terribly cool.