MicroStrategy Will Be Worth Trillions

MicroStrategy, initially a simple software company, is transforming into a new kind of financial institution. More than just a company holding bitcoin, it becomes the very first investment bank dedicated to bitcoin, with a potential valuation that is staggering: between $690 billion and $3 trillion.

The strategic shift of MicroStrategy

MicroStrategy disrupts all the codes of traditional finance. The company has developed a unique approach: acting as a sophisticated financial intermediary between traditional capital markets and the Bitcoin ecosystem. Its method is based on the issuance of financial securities backed by BTC.

This unique position is materialized by impressive figures. The company currently holds 279,420 Bitcoins, which is 1.3% of all bitcoins in circulation. This massive concentration gives it a competitive advantage that is virtually impossible to replicate for other market players.

The strategy of Michael Saylor, the Executive Chairman of MicroStrategy, goes far beyond a simple accumulation of assets. The company positions itself as a true “Bitcoin Company”, multiplying initiatives to promote the institutional adoption of cryptocurrency.

MicroStrategy: a revolutionary business model

The genius of MicroStrategy lies in the apparent simplicity of its business model. The company captures the difference between the compound annual growth rate of bitcoin and its cost of capital. Historically, BTC shows an annual growth rate exceeding 50%, while MicroStrategy can raise funds at rates close to zero thanks to its convertible bonds.

This approach completely transforms the traditional financial reading of the company. Bitcoin purchases should no longer be seen as simple investments, but as real revenue. This perspective radically changes the analysis of the company’s valuation. For the year 2024 alone, this disguised “revenue” generated over $5 billion in gross profits.

The adjusted price-earnings ratio of MicroStrategy is around 14, a level comparable to that of large traditional investment banks. This comparison becomes even more favorable when accounting for the $6.7 billion of accumulated unrealized revenues, with profit margins of 100%.

Sophisticated financial engineering

MicroStrategy does not merely buy and hold BTC. The company has developed a unique expertise in creating financial products tailored to different investor profiles. By breaking down the risk/return profile of bitcoin, it can offer customized financial instruments: common stocks, convertible bonds, potential preferred shares, and even structured products.

This ability to absorb and redistribute the volatility of bitcoin is a significant asset. MSTR, the company’s stock, acts as a volatility buffer, allowing investors to receive exactly the level of risk and return they are looking for. This sophisticated financial engineering notably allows the issuance of convertible bonds at rates close to zero.

Staggering growth prospects

MicroStrategy’s ambitions are dizzying. The company plans to raise a colossal $42 billion over three years to continue its bitcoin acquisitions. With an average of $14 billion per year, the company could double its current profits, even using very conservative assumptions about its cost of capital.

This growth relies on a unique competitive advantage. No other company can currently compete with MicroStrategy in its role as a Bitcoin investment bank. Its first-mover position, combined with its massive reserve of bitcoins, creates a practically insurmountable barrier to entry for potential competitors.

Rigorous risk management

Despite its extraordinary potential, MicroStrategy’s strategy is not without risks. The company remains fundamentally tied to the success of bitcoin. A prolonged decline in the cryptocurrency’s price could threaten its ability to honor its convertible bonds, especially if the stock price falls below the conversion price.

Regulatory risk is another concern, although it seems limited in the current political context. Restrictive legislation on the use of securities issuance for the purchase of BTC could theoretically hinder the company’s business model, although this scenario appears unlikely.

Regular dilution of shareholders also represents an important point of attention. The frequent capital increases necessary to finance bitcoin purchases imply that the growth of the stock price will always lag behind the market capitalization.

The impact of MicroStrategy on the market

MicroStrategy’s influence on the BTC market continues to grow. Each massive purchase by the company permanently removes bitcoins from circulation, creating upward pressure on prices. This strategy of permanent accumulation, combined with the absolute scarcity of bitcoin, could have significant implications for the future valuation of the cryptocurrency.

The exceptional performance of MSTR itself becomes a powerful marketing argument. The stock has outperformed all S&P 500 stocks since the start of its Bitcoin strategy in 2021. This success forces CFOs and institutional investors to reconsider their exposure to bitcoin, under threat of underperforming their benchmark indices.

MicroStrategy redefines the traditional boundaries between classic finance and the world of cryptocurrencies. By positioning itself as the essential intermediary for institutional exposure to bitcoin, the company could become one of the most powerful financial players of tomorrow. The story of MicroStrategy reminds us that the greatest financial innovations often arise from challenging established models.