In a recent interview with analysts at research and brokerage firm Bernstein, MicroStrategy founder and chairman Michael Saylor said the company’s ultimate goal is to become a leading Bitcoin bank.
MicroStrategy has been aggressively acquiring Bitcoin since 2020, leveraging debt and equity to maximize returns and outperform many of its existing investments. The company’s most recent purchases amount to 7,420. BTC
-0.11%
As announced last month, our holdings 252,220 BTC is currently worth just over $15 billion, with a total cost of approximately $9.9 billion and a debt value of $4 billion. This represents 1.2% of the total 21 million Bitcoin supply, making MicroStrategy the world’s largest corporate Bitcoin holder.
Michael Saylor’s paper argues that Bitcoin is the best-performing asset of the 21st century. He sees it as a revolutionary form of digital capital, offering a powerful hedge against inflation and an excellent tool for long-term store of value. Saylor believes Bitcoin’s volatility will attract investors seeking high returns and will make it essential for institutional and retail portfolios over time.
Under Saylor’s leadership, the company clearly demonstrated confidence in its thesis. So if that’s right and MicroStrategy becomes a large corporation with hundreds of billions of dollars in Bitcoin, what’s the end game?
Saylor views MicroStrategy as a Bitcoin bank whose core business is creating Bitcoin capital markets products across stocks, convertibles, bonds and preferred stocks, Bernstein head of digital assets Gautam Chhugani told clients in a note Friday.
“This is the most valuable asset in the world. The end game is to become a leading Bitcoin bank or commercial bank. Or you could call it a Bitcoin finance company,” Saylor said. “If we end up with $20 billion in conversions, $20 billion in preferred stock, $10 billion in debt, $50 billion in debt instruments and rescue notes, we would have $100 billion to $150 billion in Bitcoin. no see.”
“The company trades at a 50% premium with higher volatility and ARR. We can build a company that has a 100% premium to $150 billion worth of Bitcoin, and we can build a $300 to $400 billion company with the largest options market, the largest stock market. “He continued. “And then we basically started eating away at the bond market and just kept buying more and more Bitcoin. “Bitcoin will be worth millions of dollars per coin, and we will create a trillion-dollar company.”
The company’s strategy is based on the long-term belief that Bitcoin is the best deflationary currency. Bitcoin currently accounts for 0.1% of global financial capital, and Michael Saylor expects this figure to rise to 7%, which would lead to a price per Bitcoin of $13 million by 2045. explained.
If the US capital markets allow MicroStrategy to raise funds through debt, equity, and other means, MicroStrategy will happily scale and arbitrage between the USD capital markets and Bitcoin. Saylor expects to grow 29% annually in its base case scenario, Bernstein analysts said. .
When asked how scalable the company’s debt strategy is, Saylor responded, “I think it’s infinitely scalable.” “We have no problem finding a way to raise another $100 billion and then another $200 billion. $1 trillion in assets grows to $10 trillion and then to $100 trillion. The risk is very simple. It’s Bitcoin. “You either believe Bitcoin is something, or you believe it’s nothing.”
A Bitcoin bank that lends, not lends
Chughani also noted Saylor’s view that Bitcoin’s underlying compound annual growth rate is attractive enough that it can continue to make money through capital markets arbitrage and not lend out Bitcoin like the traditional banking model.
Related indices
“My view is that it is much smarter to borrow $1 billion from the bond market and then lend it to Bitcoin at 50% ARR with no counterparty risk than to cancel it and find someone willing to pay me 12%-14. %,” said Saylor.
The MicroStrategy founder argued that lending to individuals, businesses and governments is riskier than “lending on Bitcoin,” which means investing in Bitcoin, adding that the company has no plans to lend out any Bitcoin it currently holds. .
“Instead, we think it would be a better idea to borrow $10 billion from eager borrowers, offer them 100 basis points more yield, and then offer 30-50% interest on Bitcoin without counterparty risk.” explained. “Once we overcome volatility and learn how to manage it, my bearish scenario is for Bitcoin to grow only 22% per year over the next 10 years. Who will pay you 22% interest?”
Why can’t other companies replicate MicroStrategy?
Chhugani said MicroStrategy believes it can bridge the USD and Bitcoin markets by offering investable products and enable investors to gain exposure to Bitcoin volatility through options and convertible bonds with downside protection. MicroStrategy, on the other hand, benefits from cheap debt and an attractive conversion premium. This is a model that is difficult for small businesses to replicate and for larger companies to offer due to their diverse business focus.
Bitcoin miner MARA currently holds 26,842 BTC ($1.6 billion), making it the second-largest corporate Bitcoin holder after MicroStrategy, according to Bitcoin Treasuries. Metaplanet, the Japanese investment firm that most closely mirrors MicroStrategy’s playbook, only holds 748.5 BTC ($45.7 million) after its latest acquisition of 109 BTC ($6.6 million) on Friday.
“All Bitcoin miners and all companies in the cryptocurrency ecosystem, including exchanges such as Coinbase and Block, must adopt Bitcoin as a treasury reserve asset. They are destroying as much shareholder value through their balance sheets as they are creating through their P&Ls,” Saylor said. “We are increasingly getting companies like Semler Scientific and Marathon who have taken a new stance. We expect more Bitcoin miners and exchanges to follow suit over time.”
Gautam Chhugani maintains long positions in various cryptocurrencies. Bernstein and its affiliates may receive compensation for investment banking services from MicroStrategy.
Disclaimer: The Block is an independent media outlet delivering news, research and data. As of November 2023, Foresight Ventures is a majority investor in The Block. Foresight Ventures invests in other companies in the cryptocurrency space. Cryptocurrency exchange Bitget is an anchor LP of Foresight Ventures. The Block continues to operate independently to provide objective, impactful and timely information about the cryptocurrency industry. Below are our current financial disclosures.
© 2024 The Block. All rights reserved. This article is provided for informational purposes only. It is not provided or intended to be used as legal, tax, investment, financial or other advice.