MicroStrategy Is A Coiled Spring About To Jump Higher

Seeking Alpha01-08

SummaryMicroStrategy is leveraging innovative financial tools to expand its Bitcoin holdings. It has been reducing leverage and increasing optionality through aggressive ATM offerings in Q4 2024.The ...

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01-09
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It has been reducing leverage and increasing optionality through aggressive ATM offerings in Q4 2024.The ...</p>\n\n<a href=\"https://seekingalpha.com/article/4748226-microstrategy-is-a-coiled-spring-about-to-jump-higher\">Source Link</a>\n\n</div>\n","source":"lsy1728464409321","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>MicroStrategy Is A Coiled Spring About To Jump Higher</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nMicroStrategy Is A Coiled Spring About To Jump Higher\n</h2>\n\n<h4 class=\"meta\">\n\n\n2025-01-08 23:52 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4748226-microstrategy-is-a-coiled-spring-about-to-jump-higher><strong>Seeking Alpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>SummaryMicroStrategy is leveraging innovative financial tools to expand its Bitcoin holdings. It has been reducing leverage and increasing optionality through aggressive ATM offerings in Q4 2024.The ...</p>\n\n<a href=\"https://seekingalpha.com/article/4748226-microstrategy-is-a-coiled-spring-about-to-jump-higher\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":null,"symbol_name":null,"start_time":0,"source_url":"https://seekingalpha.com/article/4748226-microstrategy-is-a-coiled-spring-about-to-jump-higher","article_id":"1169914515","we_media_id":null,"thumbnails":[],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=1169914515","pubTimestamp":1736351572,"columns":[],"sourceInfo":{"source_id":"lsy1728464409321","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"SummaryMicroStrategy is leveraging innovative financial tools to expand its Bitcoin holdings. It has been reducing leverage and increasing optionality through aggressive ATM offerings in Q4 2024.The c","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{},"translate_title":"MicroStrategy是一个即将跳得更高的螺旋弹簧","themeId":"","isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"MSTR":1.1},"content_text":"SummaryMicroStrategy is leveraging innovative financial tools to expand its Bitcoin holdings. It has been reducing leverage and increasing optionality through aggressive ATM offerings in Q4 2024.The company intends to increase its authorized common and preferred share counts, enabling future BTC purchases via issuances and opening the door to more stock splits.The recent offering of perpetual preferred shares with conversion features signals the expansion of the total addressable market into different portions of the capital markets.Despite potential risks from Bitcoin volatility and regulatory actions, MSTR's unique business model and strong investor interest position it for impressive growth.Convertible bonds and preferred stock in Q1 2025 should push the stock much higher with higher BTC yield.Bitcoin Conference Draws Cryptocurrency Fans To MiamiLet's cover the many recent developments for MicroStrategy (NASDAQ:MSTR). I remain incredibly bullish on MSTR. You are encouraged to read my last article, as this missive builds heavily upon the understanding established in that article.Here's the summary of that last article:MSTR is Bitcoin's only investment bank since MicroStrategy securities are really just Bitcoin (BTC-USD) securitiesMSTR's true business is in chopping up the CAGR and volatility profile of BTC into different levels of risk and return for different investors.This means that each time MSTR raises money that money is best considered as revenue to the business. The company immediately takes that revenue and invests it into the Bitcoin network to generate a return in the form of BTC Yield.Anyone who says MSTR is a software business with a Bitcoin treasury does not really understand the company. It is actually software, Bitcoin treasury, plus what I call \"investment bank operations\". I valued the investment banking operation to be worth at least $1 trillion.Recent developments prove my thesis and signal very bullish catalysts for the stock. Here they are:The aggressive deployment of ATM offerings to bring down the leverage ratio and the company's premium to Bitcoin treasury NAVRaising the authorized max common stock share count from 330 million shares to 10.33 billion sharesRaising the authorized max preferred stock share count from 5 million shares to 10.005 billion sharesGoing into Q1 with about $19 billion in convertible bonds left to deployAnd most recently, the offering of $2 billion in perpetual preferred sharesMicroStrategy is assembling the financial tools necessary for unprecedented expansion. The company's recent moves have positioned MSTR as a coiled spring, poised to explode much higher in 2025.ATM Aggression Reduces Leverage and Increases OptionalityMSTR used its ATM to sell nearly $14 billion in shares within 2 months of the 21/21 capital raise plan ($21 billion ATM and $21 billion in fixed income). The proceeds were used to buy BTC and reduce the leverage ratio of the company and drop the premium to NAV. Here you can see that the NAV premium has fallen back below 2X the company's BTC holdings, after getting close to 3.5X. Premium contraction was mostly due to the stock falling from $540 to $330, but using the ATM also contributed to adding more BTC to the treasury, and therefore shrinking the premium by increasing the denominator in the market cap to BTC ratio.NAV PremiumThe net result of using equity dilution to buy BTC is that it drops the leverage ratio of the company. Currently, the company has about $8 billion in convertible bonds outstanding. This is ultimately backed by the BTC holdings, which are worth about $44 billion. If MSTR buys BTC using equity dilution, then it increases the BTC holdings number without increasing the debt number, thus shrinking the leverage ratio.All this does is set the stage for lenders to have more \"collateral\" and therefore de-risk borrowing. On top of that, MSTR IV has been falling and this makes convertible bonds less attractive for the company. Note that when IV peaked around 21 November 2024, MSTR did a $3 billion convertible bonds raise. This also depletes their $21 billion in fixed income from the 21/21 plan to $18 billion going into Q1.MSTR IV and PriceWhen convertible bonds resume, BTC Yield will skyrocket and the stock will likely respond accordingly. As the stock rallies, IV rallies too, and this is when more convertible bonds may be issued to boost BTC Yield. I expect that their guidance of 8–10% annual BTC Yield will be achieved before Q1 2025 ends.More Shares And More Preferred SharesMicroStrategy's recent proposal to increase its authorized common share count from 330 million to 10.33 billion is a big deal. This move provides the company with better flexibility to issue equity in the future, enabling further BTC purchases from future ATMs. However, the sheer scale of the increase has raised eyebrows.I just want to be clear that this really is not a 30X increase in the share account. It is highly likely that after MSTR crosses $1000 per share, the company will do a 10-for-1 split like it did in mid-2024. Here is why stock splits are a big deal for this company in particular. So this 30X increase is probably only a 3X increase from dilution.Far more significant is the proposal on authorized preferred shares count, from 5 million to 10 billion. Preferred shares offer a unique financing mechanism that avoids direct dilution of common shareholders. By issuing preferred shares with positive coupons, MicroStrategy could attract yield-seeking investors while channeling the proceeds into more BTC.This is also exactly what I predicted in my last MSTR article about it being Bitcoin's investment bank issuing a number of different securities for a number of different investors. Bitcoin cannot issue preferred stock, but through MicroStrategy—Bitcoin's only investment bank—it can. MicroStrategy brings the risk and return profile of BTC to different groups of investors, in a safe and manageable form for each respective group.So, is MicroStrategy issuing preferred stock?The answer is yes. They are targeting $2 billion in perpetual preferred stock, which may have a conversion feature to common stock.The market for preferred stock is bigger than the market for convertible bonds. Please remember that MSTR's convertible bonds are basically the best performing bonds on the planet, as you can see here:MSTRThe same is likely to happen to preferred stock.Here's another thing that most people do not understand. If the perpetual preferred stock has a conversion feature, then it is really an embedded everlasting call option (a call which does not expire).A call option very far OTM with high IV can be worth a lot of money if the DTE is an extremely high number. If you plug these parameters into the Black-Scholes model, you will see this for yourself. What MSTR would be doing here is maximizing the time value of the options they are selling to maximize the option value they are selling.In the past, I have covered how MSTR's convertible bonds strategy meant they were monetizing the second moment of the distribution by selling volatility (volatility is the square root of variance, and variance is the second moment). Well, a perpetual preferred stock with a conversion feature is monetizing time value to the fullest extent possible because you are selling options with infinite time.All of this money acquired by all this financial engineering goes straight into generating more BTC Yield for common stock shareholders.Any MSTR analysis which does not cover the basic facts of options pricing is unable to provide a thorough picture of the company's true business operations. This requires sophisticated knowledge which the market as an emergent entity obviously understands, hence the market prices MSTR shares at a premium to the BTC NAV.Those who do not understand will try to justify an ill-advised long BTC short MSTR pair trade, which I debunk in this article.Innovative Financing—Imagine Preferred Stock And Negative Coupon ConvertiblesPreferred stock with positive coupons offers a win-win for the company and preferred stock investors. Preferred stock gives more flexibility than regular fixed income, which can be helpful.At the same time, MSTR can issue negative coupon convertible bonds whose interest payments can be used to pay the preferred stock dividends. Negative rates can be achieved by lowering the conversion premium of the bonds. This increases the embedded option value and can justify negative interest rates.This combination of preferred stock and negative coupon bonds would allow MicroStrategy to raise an enormous amount of capital at almost zero ongoing expense. Moreover, it would be serving completely different classes of investors, which increases the total addressable market of the investment banking operation.This is why increasing 5 million preferred shares to 10 billion preferred shares is so important. It is setting the stage for very big and highly accretive moves.RisksHere's what I stated in my last article on thesis risks. This will continue to apply.MSTR would fail if Bitcoin fails. The whole investment thesis is predicated upon accepting Bitcoin risk. But if BTC crashes, I'm not sure that would mean MSTR would crash harder. Positive BTC Yield should be regarded as an alpha on top of BTC performance… I think it really comes down to the duration of a BTC drawdown. If the drawdown is extended and MSTR's price is below the conversion price on its convertibles, then convertible bonds investors might choose not to convert. This could force MSTR to issue more debt to pay off these demands, or even to sell BTC. That could be catastrophic for sentiment.I think it is also possible that MSTR could fail if regulators step in to squash the business. Maybe a law can be passed that securities issuances cannot be used to buy BTC, or something to that effect. This would certainly be a remote, tail risk. The incoming Trump administration is definitely more politically aligned with crypto than the outgoing administration. I think it is extremely unlikely for MSTR to get regulated away.Adding on to this, it is possible that preferred stock does not get as much uptake as convertible bonds do. These are different investors, with different preferences. Preferred stock investors tend to desire stability and steady cash flows. They tend to be insurance companies, banks, and pensions. Convertible bond investors tend to be volatility arbitrageurs and fixed income traders.MSTR just offered $2 billion. It will be interesting to watch how this develops. Personally, I doubt this will be a problem. After the first raise, the stock price will likely respond very favorably as it is a signal that Bitcoin, via MSTR, has broken into this new section of the capital markets too.ConclusionThere are a few more developments which I will mention in closing. The demand for MSTR convertible bonds seems insatiable, and two asset managers have filed ETFs which will bring MSTR convertibles in an ETF wrapper. I do not know of any other company that has so much investor interest in their fixed income that ETFs were filed to give exposure to non-accredited investors. Here is the filing for the REX Bitcoin Corporate Treasury Convertible Bond ETF. And here is Strive Asset Management's filing for the Strive Bitcoin Bond ETF. Both were filed in late December. All this does is introduce price insensitive buyers of future bond issuances, which compresses the cost of debt capital. This means even more BTC Yield for MSTR shareholders.MicroStrategy's recent maneuvers have positioned it on the verge of something truly extraordinary. I expect impressive BTC Yield numbers and eventually inclusion into the S&P 500 (Nasdaq 100 has already been achieved) in 2025.MSTR is mastering the securitization of BTC into capital assets for every investor caste by channeling BTC through its own capital structure. This is a business model unlike anything anyone has ever seen, performed with an asset few people understand. I see it as a gigantic information asymmetry which heavily favors people who grasp the nuances of the company's economic reality. The risks are there, but so far, it has been working spectacularly. If you think BTC continues to seep into the global financial system, I view MSTR as the best way to express this view. Strong Buy.","kind":"news","is_publish_news":true,"is_publish_highlight":true,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[{"id":390511383011504,"gmtCreate":1736358105719,"gmtModify":1736374324478,"author":{"id":"4113198028535062","authorId":"4113198028535062","name":"Joyce go","avatar":"https://community-static.tradeup.com/news/19178cf808c13e5ae626de3e368e2ead","vip":1,"crmLevel":1,"crmLevelSwitch":0,"authorIdStr":"4113198028535062","idStr":"4113198028535062"},"htmlText":"Share your opinion about this news…","listText":"Share your opinion about this news…","text":"Share your opinion about this news…","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/390511383011504","repostId":1169914515,"repostType":2,"repost":{"id":"1169914515","kind":"news","pubTimestamp":1736351572,"share":"https://ttm.financial/m/news/1169914515?lang=&edition=fundamental","pubTime":"2025-01-08 23:52","market":"us","language":"en","title":"MicroStrategy Is A Coiled Spring About To Jump Higher","url":"https://stock-news.laohu8.com/highlight/detail?id=1169914515","media":"Seeking Alpha","summary":"SummaryMicroStrategy is leveraging innovative financial tools to expand its Bitcoin holdings. It has been reducing leverage and increasing optionality through aggressive ATM offerings in Q4 2024.The c","content":"<html><head></head><body><h2 id=\"id_3479039673\">Summary</h2><ul style=\"\"><li><p>MicroStrategy is leveraging innovative financial tools to expand its Bitcoin holdings. It has been reducing leverage and increasing optionality through aggressive ATM offerings in Q4 2024.</p></li><li><p>The company intends to increase its authorized common and preferred share counts, enabling future BTC purchases via issuances and opening the door to more stock splits.</p></li><li><p>The recent offering of perpetual preferred shares with conversion features signals the expansion of the total addressable market into different portions of the capital markets.</p></li><li><p>Despite potential risks from Bitcoin volatility and regulatory actions, MSTR&#39;s unique business model and strong investor interest position it for impressive growth.</p></li><li><p>Convertible bonds and preferred stock in Q1 2025 should push the stock much higher with higher BTC yield.</p></li></ul><p></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/4f23ab0b9020157aa16640d81e82097d\" title=\"Bitcoin Conference Draws Cryptocurrency Fans To Miami\" tg-width=\"750\" tg-height=\"500\"/><span>Bitcoin Conference Draws Cryptocurrency Fans To Miami</span></p><p></p><p>Let&#39;s cover the many recent developments for MicroStrategy (NASDAQ:MSTR). I remain incredibly bullish on MSTR. You are encouraged to read my last article, as this missive builds heavily upon the understanding established in that article.</p><p>Here&#39;s the summary of that last article:</p><ul style=\"\"><li><p>MSTR is Bitcoin&#39;s only investment bank since MicroStrategy securities are really just Bitcoin (BTC-USD) securities</p></li><li><p>MSTR&#39;s true business is in chopping up the CAGR and volatility profile of BTC into different levels of risk and return for different investors.</p></li><li><p>This means that each time MSTR raises money that money is best considered as revenue to the business. The company immediately takes that revenue and invests it into the Bitcoin network to generate a return in the form of BTC Yield.</p></li><li><p>Anyone who says MSTR is a software business with a Bitcoin treasury does not really understand the company. It is actually software, Bitcoin treasury, plus what I call &#34;investment bank operations&#34;. I valued the investment banking operation to be worth at least $1 trillion.</p></li></ul><p>Recent developments prove my thesis and signal very bullish catalysts for the stock. Here they are:</p><ul style=\"\"><li><p>The aggressive deployment of ATM offerings to bring down the leverage ratio and the company&#39;s premium to Bitcoin treasury NAV</p></li><li><p>Raising the authorized max common stock share count from 330 million shares to 10.33 billion shares</p></li><li><p>Raising the authorized max preferred stock share count from 5 million shares to 10.005 billion shares</p></li><li><p>Going into Q1 with about $19 billion in convertible bonds left to deploy</p></li><li><p>And most recently, the offering of $2 billion in perpetual preferred shares</p></li></ul><p>MicroStrategy is assembling the financial tools necessary for unprecedented expansion. The company&#39;s recent moves have positioned MSTR as a coiled spring, poised to explode much higher in 2025.</p><h2 id=\"id_91032892\">ATM Aggression Reduces Leverage and Increases Optionality</h2><p>MSTR used its ATM to sell nearly $14 billion in shares within 2 months of the 21/21 capital raise plan ($21 billion ATM and $21 billion in fixed income). The proceeds were used to buy BTC and reduce the leverage ratio of the company and drop the premium to NAV. Here you can see that the NAV premium has fallen back below 2X the company&#39;s BTC holdings, after getting close to 3.5X. Premium contraction was mostly due to the stock falling from $540 to $330, but using the ATM also contributed to adding more BTC to the treasury, and therefore shrinking the premium by increasing the denominator in the market cap to BTC ratio.</p><p></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/bc21ec7f4c988fc7c0ecbce347ff8ca9\" title=\"NAV Premium\" tg-width=\"1280\" tg-height=\"473\"/><span>NAV Premium</span></p><p></p><p>The net result of using equity dilution to buy BTC is that it drops the leverage ratio of the company. Currently, the company has about $8 billion in convertible bonds outstanding. This is ultimately backed by the BTC holdings, which are worth about $44 billion. If MSTR buys BTC using equity dilution, then it increases the BTC holdings number without increasing the debt number, thus shrinking the leverage ratio.</p><p>All this does is set the stage for lenders to have more &#34;collateral&#34; and therefore de-risk borrowing. On top of that, MSTR IV has been falling and this makes convertible bonds less attractive for the company. Note that when IV peaked around 21 November 2024, MSTR did a $3 billion convertible bonds raise. This also depletes their $21 billion in fixed income from the 21/21 plan to $18 billion going into Q1.</p><p></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/2f83eeca8e264a3081c6974bcb9aac14\" title=\"MSTR IV and Price\" tg-width=\"744\" tg-height=\"628\"/><span>MSTR IV and Price</span></p><p></p><p>When convertible bonds resume, BTC Yield will skyrocket and the stock will likely respond accordingly. As the stock rallies, IV rallies too, and this is when more convertible bonds may be issued to boost BTC Yield. I expect that their guidance of 8–10% annual BTC Yield will be achieved before Q1 2025 ends.</p><h2 id=\"id_3447616525\">More Shares And More Preferred Shares</h2><p>MicroStrategy&#39;s recent proposal to increase its authorized common share count from 330 million to 10.33 billion is a big deal. This move provides the company with better flexibility to issue equity in the future, enabling further BTC purchases from future ATMs. However, the sheer scale of the increase has raised eyebrows.</p><p>I just want to be clear that this really is not a 30X increase in the share account. It is highly likely that after MSTR crosses $1000 per share, the company will do a 10-for-1 split like it did in mid-2024. Here is why stock splits are a big deal for this company in particular. So this 30X increase is probably only a 3X increase from dilution.</p><p>Far more significant is the proposal on authorized preferred shares count, from 5 million to 10 billion. Preferred shares offer a unique financing mechanism that avoids direct dilution of common shareholders. By issuing preferred shares with positive coupons, MicroStrategy could attract yield-seeking investors while channeling the proceeds into more BTC.</p><p>This is also exactly what I predicted in my last MSTR article about it being Bitcoin&#39;s investment bank issuing a number of different securities for a number of different investors. Bitcoin cannot issue preferred stock, but through MicroStrategy—Bitcoin&#39;s only investment bank—it can. MicroStrategy brings the risk and return profile of BTC to different groups of investors, in a safe and manageable form for each respective group.</p><p>So, is MicroStrategy issuing preferred stock?</p><p>The answer is yes. They are targeting $2 billion in perpetual preferred stock, which may have a conversion feature to common stock.</p><p>The market for preferred stock is bigger than the market for convertible bonds. Please remember that MSTR&#39;s convertible bonds are basically the best performing bonds on the planet, as you can see here:</p><p></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/5d3c796bc0c9589d8bcf336b26cf7c8b\" title=\"MSTR\" tg-width=\"1280\" tg-height=\"719\"/><span>MSTR</span></p><p></p><p>The same is likely to happen to preferred stock.</p><p>Here&#39;s another thing that most people do not understand. If the perpetual preferred stock has a conversion feature, then it is really an embedded everlasting call option (a call which does not expire).</p><p>A call option very far OTM with high IV can be worth a lot of money if the DTE is an extremely high number. If you plug these parameters into the Black-Scholes model, you will see this for yourself. What MSTR would be doing here is maximizing the time value of the options they are selling to maximize the option value they are selling.</p><p>In the past, I have covered how MSTR&#39;s convertible bonds strategy meant they were monetizing the second moment of the distribution by selling volatility (volatility is the square root of variance, and variance is the second moment). Well, a perpetual preferred stock with a conversion feature is monetizing time value to the fullest extent possible because you are selling options with infinite time.</p><p>All of this money acquired by all this financial engineering goes straight into generating more BTC Yield for common stock shareholders.</p><p>Any MSTR analysis which does not cover the basic facts of options pricing is unable to provide a thorough picture of the company&#39;s true business operations. This requires sophisticated knowledge which the market as an emergent entity obviously understands, hence the market prices MSTR shares at a premium to the BTC NAV.</p><p>Those who do not understand will try to justify an ill-advised long BTC short MSTR pair trade, which I debunk in this article.</p><h2 id=\"id_4083927669\">Innovative Financing—Imagine Preferred Stock And Negative Coupon Convertibles</h2><p>Preferred stock with positive coupons offers a win-win for the company and preferred stock investors. Preferred stock gives more flexibility than regular fixed income, which can be helpful.</p><p>At the same time, MSTR can issue negative coupon convertible bonds whose interest payments can be used to pay the preferred stock dividends. Negative rates can be achieved by lowering the conversion premium of the bonds. This increases the embedded option value and can justify negative interest rates.</p><p>This combination of preferred stock and negative coupon bonds would allow MicroStrategy to raise an enormous amount of capital at almost zero ongoing expense. Moreover, it would be serving completely different classes of investors, which increases the total addressable market of the investment banking operation.</p><p>This is why increasing 5 million preferred shares to 10 billion preferred shares is so important. It is setting the stage for very big and highly accretive moves.</p><h2 id=\"id_82243189\">Risks</h2><p>Here&#39;s what I stated in my last article on thesis risks. This will continue to apply.</p><blockquote><p>MSTR would fail if Bitcoin fails. The whole investment thesis is predicated upon accepting Bitcoin risk. But if BTC crashes, I&#39;m not sure that would mean MSTR would crash harder. Positive BTC Yield should be regarded as an alpha on top of BTC performance… I think it really comes down to the duration of a BTC drawdown. If the drawdown is extended and MSTR&#39;s price is below the conversion price on its convertibles, then convertible bonds investors might choose not to convert. This could force MSTR to issue more debt to pay off these demands, or even to sell BTC. That could be catastrophic for sentiment.</p><p>I think it is also possible that MSTR could fail if regulators step in to squash the business. Maybe a law can be passed that securities issuances cannot be used to buy BTC, or something to that effect. This would certainly be a remote, tail risk. The incoming Trump administration is definitely more politically aligned with crypto than the outgoing administration. I think it is extremely unlikely for MSTR to get regulated away.</p></blockquote><p>Adding on to this, it is possible that preferred stock does not get as much uptake as convertible bonds do. These are different investors, with different preferences. Preferred stock investors tend to desire stability and steady cash flows. They tend to be insurance companies, banks, and pensions. Convertible bond investors tend to be volatility arbitrageurs and fixed income traders.</p><p>MSTR just offered $2 billion. It will be interesting to watch how this develops. Personally, I doubt this will be a problem. After the first raise, the stock price will likely respond very favorably as it is a signal that Bitcoin, via MSTR, has broken into this new section of the capital markets too.</p><h2 id=\"id_1079602031\">Conclusion</h2><p>There are a few more developments which I will mention in closing. The demand for MSTR convertible bonds seems insatiable, and two asset managers have filed ETFs which will bring MSTR convertibles in an ETF wrapper. I do not know of any other company that has so much investor interest in their fixed income that ETFs were filed to give exposure to non-accredited investors. Here is the filing for the REX Bitcoin Corporate Treasury Convertible Bond ETF. And here is Strive Asset Management&#39;s filing for the Strive Bitcoin Bond ETF. Both were filed in late December. All this does is introduce price insensitive buyers of future bond issuances, which compresses the cost of debt capital. This means even more BTC Yield for MSTR shareholders.</p><p>MicroStrategy&#39;s recent maneuvers have positioned it on the verge of something truly extraordinary. I expect impressive BTC Yield numbers and eventually inclusion into the S&amp;P 500 (Nasdaq 100 has already been achieved) in 2025.</p><p>MSTR is mastering the securitization of BTC into capital assets for every investor caste by channeling BTC through its own capital structure. This is a business model unlike anything anyone has ever seen, performed with an asset few people understand. I see it as a gigantic information asymmetry which heavily favors people who grasp the nuances of the company&#39;s economic reality. The risks are there, but so far, it has been working spectacularly. If you think BTC continues to seep into the global financial system, I view MSTR as the best way to express this view. Strong Buy.</p></body></html>","source":"lsy1728464409321","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>MicroStrategy Is A Coiled Spring About To Jump Higher</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nMicroStrategy Is A Coiled Spring About To Jump Higher\n</h2>\n\n<h4 class=\"meta\">\n\n\n2025-01-08 23:52 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4748226-microstrategy-is-a-coiled-spring-about-to-jump-higher><strong>Seeking Alpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>SummaryMicroStrategy is leveraging innovative financial tools to expand its Bitcoin holdings. It has been reducing leverage and increasing optionality through aggressive ATM offerings in Q4 2024.The ...</p>\n\n<a href=\"https://seekingalpha.com/article/4748226-microstrategy-is-a-coiled-spring-about-to-jump-higher\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{},"source_url":"https://seekingalpha.com/article/4748226-microstrategy-is-a-coiled-spring-about-to-jump-higher","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1169914515","content_text":"SummaryMicroStrategy is leveraging innovative financial tools to expand its Bitcoin holdings. It has been reducing leverage and increasing optionality through aggressive ATM offerings in Q4 2024.The company intends to increase its authorized common and preferred share counts, enabling future BTC purchases via issuances and opening the door to more stock splits.The recent offering of perpetual preferred shares with conversion features signals the expansion of the total addressable market into different portions of the capital markets.Despite potential risks from Bitcoin volatility and regulatory actions, MSTR's unique business model and strong investor interest position it for impressive growth.Convertible bonds and preferred stock in Q1 2025 should push the stock much higher with higher BTC yield.Bitcoin Conference Draws Cryptocurrency Fans To MiamiLet's cover the many recent developments for MicroStrategy (NASDAQ:MSTR). I remain incredibly bullish on MSTR. You are encouraged to read my last article, as this missive builds heavily upon the understanding established in that article.Here's the summary of that last article:MSTR is Bitcoin's only investment bank since MicroStrategy securities are really just Bitcoin (BTC-USD) securitiesMSTR's true business is in chopping up the CAGR and volatility profile of BTC into different levels of risk and return for different investors.This means that each time MSTR raises money that money is best considered as revenue to the business. The company immediately takes that revenue and invests it into the Bitcoin network to generate a return in the form of BTC Yield.Anyone who says MSTR is a software business with a Bitcoin treasury does not really understand the company. It is actually software, Bitcoin treasury, plus what I call \"investment bank operations\". I valued the investment banking operation to be worth at least $1 trillion.Recent developments prove my thesis and signal very bullish catalysts for the stock. Here they are:The aggressive deployment of ATM offerings to bring down the leverage ratio and the company's premium to Bitcoin treasury NAVRaising the authorized max common stock share count from 330 million shares to 10.33 billion sharesRaising the authorized max preferred stock share count from 5 million shares to 10.005 billion sharesGoing into Q1 with about $19 billion in convertible bonds left to deployAnd most recently, the offering of $2 billion in perpetual preferred sharesMicroStrategy is assembling the financial tools necessary for unprecedented expansion. The company's recent moves have positioned MSTR as a coiled spring, poised to explode much higher in 2025.ATM Aggression Reduces Leverage and Increases OptionalityMSTR used its ATM to sell nearly $14 billion in shares within 2 months of the 21/21 capital raise plan ($21 billion ATM and $21 billion in fixed income). The proceeds were used to buy BTC and reduce the leverage ratio of the company and drop the premium to NAV. Here you can see that the NAV premium has fallen back below 2X the company's BTC holdings, after getting close to 3.5X. Premium contraction was mostly due to the stock falling from $540 to $330, but using the ATM also contributed to adding more BTC to the treasury, and therefore shrinking the premium by increasing the denominator in the market cap to BTC ratio.NAV PremiumThe net result of using equity dilution to buy BTC is that it drops the leverage ratio of the company. Currently, the company has about $8 billion in convertible bonds outstanding. This is ultimately backed by the BTC holdings, which are worth about $44 billion. If MSTR buys BTC using equity dilution, then it increases the BTC holdings number without increasing the debt number, thus shrinking the leverage ratio.All this does is set the stage for lenders to have more \"collateral\" and therefore de-risk borrowing. On top of that, MSTR IV has been falling and this makes convertible bonds less attractive for the company. Note that when IV peaked around 21 November 2024, MSTR did a $3 billion convertible bonds raise. This also depletes their $21 billion in fixed income from the 21/21 plan to $18 billion going into Q1.MSTR IV and PriceWhen convertible bonds resume, BTC Yield will skyrocket and the stock will likely respond accordingly. As the stock rallies, IV rallies too, and this is when more convertible bonds may be issued to boost BTC Yield. I expect that their guidance of 8–10% annual BTC Yield will be achieved before Q1 2025 ends.More Shares And More Preferred SharesMicroStrategy's recent proposal to increase its authorized common share count from 330 million to 10.33 billion is a big deal. This move provides the company with better flexibility to issue equity in the future, enabling further BTC purchases from future ATMs. However, the sheer scale of the increase has raised eyebrows.I just want to be clear that this really is not a 30X increase in the share account. It is highly likely that after MSTR crosses $1000 per share, the company will do a 10-for-1 split like it did in mid-2024. Here is why stock splits are a big deal for this company in particular. So this 30X increase is probably only a 3X increase from dilution.Far more significant is the proposal on authorized preferred shares count, from 5 million to 10 billion. Preferred shares offer a unique financing mechanism that avoids direct dilution of common shareholders. By issuing preferred shares with positive coupons, MicroStrategy could attract yield-seeking investors while channeling the proceeds into more BTC.This is also exactly what I predicted in my last MSTR article about it being Bitcoin's investment bank issuing a number of different securities for a number of different investors. Bitcoin cannot issue preferred stock, but through MicroStrategy—Bitcoin's only investment bank—it can. MicroStrategy brings the risk and return profile of BTC to different groups of investors, in a safe and manageable form for each respective group.So, is MicroStrategy issuing preferred stock?The answer is yes. They are targeting $2 billion in perpetual preferred stock, which may have a conversion feature to common stock.The market for preferred stock is bigger than the market for convertible bonds. Please remember that MSTR's convertible bonds are basically the best performing bonds on the planet, as you can see here:MSTRThe same is likely to happen to preferred stock.Here's another thing that most people do not understand. If the perpetual preferred stock has a conversion feature, then it is really an embedded everlasting call option (a call which does not expire).A call option very far OTM with high IV can be worth a lot of money if the DTE is an extremely high number. If you plug these parameters into the Black-Scholes model, you will see this for yourself. What MSTR would be doing here is maximizing the time value of the options they are selling to maximize the option value they are selling.In the past, I have covered how MSTR's convertible bonds strategy meant they were monetizing the second moment of the distribution by selling volatility (volatility is the square root of variance, and variance is the second moment). Well, a perpetual preferred stock with a conversion feature is monetizing time value to the fullest extent possible because you are selling options with infinite time.All of this money acquired by all this financial engineering goes straight into generating more BTC Yield for common stock shareholders.Any MSTR analysis which does not cover the basic facts of options pricing is unable to provide a thorough picture of the company's true business operations. This requires sophisticated knowledge which the market as an emergent entity obviously understands, hence the market prices MSTR shares at a premium to the BTC NAV.Those who do not understand will try to justify an ill-advised long BTC short MSTR pair trade, which I debunk in this article.Innovative Financing—Imagine Preferred Stock And Negative Coupon ConvertiblesPreferred stock with positive coupons offers a win-win for the company and preferred stock investors. Preferred stock gives more flexibility than regular fixed income, which can be helpful.At the same time, MSTR can issue negative coupon convertible bonds whose interest payments can be used to pay the preferred stock dividends. Negative rates can be achieved by lowering the conversion premium of the bonds. This increases the embedded option value and can justify negative interest rates.This combination of preferred stock and negative coupon bonds would allow MicroStrategy to raise an enormous amount of capital at almost zero ongoing expense. Moreover, it would be serving completely different classes of investors, which increases the total addressable market of the investment banking operation.This is why increasing 5 million preferred shares to 10 billion preferred shares is so important. It is setting the stage for very big and highly accretive moves.RisksHere's what I stated in my last article on thesis risks. This will continue to apply.MSTR would fail if Bitcoin fails. The whole investment thesis is predicated upon accepting Bitcoin risk. But if BTC crashes, I'm not sure that would mean MSTR would crash harder. Positive BTC Yield should be regarded as an alpha on top of BTC performance… I think it really comes down to the duration of a BTC drawdown. If the drawdown is extended and MSTR's price is below the conversion price on its convertibles, then convertible bonds investors might choose not to convert. This could force MSTR to issue more debt to pay off these demands, or even to sell BTC. That could be catastrophic for sentiment.I think it is also possible that MSTR could fail if regulators step in to squash the business. Maybe a law can be passed that securities issuances cannot be used to buy BTC, or something to that effect. This would certainly be a remote, tail risk. The incoming Trump administration is definitely more politically aligned with crypto than the outgoing administration. I think it is extremely unlikely for MSTR to get regulated away.Adding on to this, it is possible that preferred stock does not get as much uptake as convertible bonds do. These are different investors, with different preferences. Preferred stock investors tend to desire stability and steady cash flows. They tend to be insurance companies, banks, and pensions. Convertible bond investors tend to be volatility arbitrageurs and fixed income traders.MSTR just offered $2 billion. It will be interesting to watch how this develops. Personally, I doubt this will be a problem. After the first raise, the stock price will likely respond very favorably as it is a signal that Bitcoin, via MSTR, has broken into this new section of the capital markets too.ConclusionThere are a few more developments which I will mention in closing. The demand for MSTR convertible bonds seems insatiable, and two asset managers have filed ETFs which will bring MSTR convertibles in an ETF wrapper. I do not know of any other company that has so much investor interest in their fixed income that ETFs were filed to give exposure to non-accredited investors. Here is the filing for the REX Bitcoin Corporate Treasury Convertible Bond ETF. And here is Strive Asset Management's filing for the Strive Bitcoin Bond ETF. Both were filed in late December. All this does is introduce price insensitive buyers of future bond issuances, which compresses the cost of debt capital. This means even more BTC Yield for MSTR shareholders.MicroStrategy's recent maneuvers have positioned it on the verge of something truly extraordinary. I expect impressive BTC Yield numbers and eventually inclusion into the S&P 500 (Nasdaq 100 has already been achieved) in 2025.MSTR is mastering the securitization of BTC into capital assets for every investor caste by channeling BTC through its own capital structure. This is a business model unlike anything anyone has ever seen, performed with an asset few people understand. I see it as a gigantic information asymmetry which heavily favors people who grasp the nuances of the company's economic reality. The risks are there, but so far, it has been working spectacularly. If you think BTC continues to seep into the global financial system, I view MSTR as the best way to express this view. Strong Buy.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":12,"commentSize":1,"repostSize":1,"favoriteSize":2,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.30.2","shortVersion":"4.30.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/1169914515"}