"Bitcoin Bank" MicroStrategy: Crazy Hoarding, Stock Soaring 26 Times, But Core Business Remains Loss-Making

"Bitcoin Bank" MicroStrategy: Crazy Hoarding, Stock Soaring 26 Times, But Core Business Remains Loss-MakingLeveraging its "hoarding Bitcoin" strategy, publicly listed company MicroStrategy (MSTR.US, hereinafter referred to as "MSTR") has seen its stock price surge, outpacing even the growth of tech giant Nvidia

"Bitcoin Bank" MicroStrategy: Crazy Hoarding, Stock Soaring 26 Times, But Core Business Remains Loss-Making

Leveraging its "hoarding Bitcoin" strategy, publicly listed company MicroStrategy (MSTR.US, hereinafter referred to as "MSTR") has seen its stock price surge, outpacing even the growth of tech giant Nvidia. As of November 14th, MSTR's stock closed at $327.67, a staggering 26-fold increase from its price of about $12 in August 2020 when it began accumulating Bitcoin. This makes it the top-performing US stock during that period. According to disclosures, as of November 10, 2024, MSTR and its subsidiaries hold approximately 279,420 Bitcoin (worth around $18 billion). With Bitcoin trading at $93,000, MSTR's holdings have generated a profit exceeding $14 billion. Recently, MSTR's founder stated plans to raise $42 billion over the next three years to continue its Bitcoin acquisition spree.

270,000 Bitcoin Holdings, 26.4% Return This Year

MSTR is a US-listed company primarily engaged in enterprise analytics software. In August 2020, under the leadership of Chairman Michael Saylor, MSTR announced the purchase of 21,454 BTC for $250 million, becoming the first publicly listed company to adopt a Bitcoin-focused strategy. MSTR's Bitcoin acquisition strategy involves acquiring Bitcoin using funds raised through equity offerings and debt issuance, borrowing at an interest rate of about 1%. According to disclosures, MSTR has issued approximately 40 Bitcoin purchase announcements over the past four years.

According to LookonChain monitoring, as of the end of September this year, MSTR held a total of 252,200 Bitcoin, with an average purchase price of $39,266. On November 10th, Michael Saylor revealed that MSTR bought another 27,200 Bitcoin for approximately $2.03 billion, with an average purchase price of $74,500, marking the largest buy order since December 2020. Michael Saylor also disclosed that as of November 10, 2024, MSTR's Bitcoin holdings reached 279,420, resulting in a Bitcoin return of 26.4% year-to-date. The company has become the largest Bitcoin holder among US-listed companies.

Since its Bitcoin "hoarding" strategy began in 2020, Bitcoin's price has surged from just over $10,000 to over $90,000. Saylortracker statistics show that as Bitcoin surpassed $93,000, MSTR's Bitcoin holdings reached a market value of over $26 billion, currently exceeding $260.6 billion, with an unrealized profit exceeding $14 billion.

"This year, MSTR has generated approximately 49,936 Bitcoin in net profit for shareholders, equivalent to 157.5 Bitcoin per day, without incurring any operational costs or capital investment related to Bitcoin mining," Michael Saylor stated on social media.

As of November 14th, MSTR's stock closed at $327.67, with a market capitalization of $66.4 billion. Its stock reached $383.40 on November 13th, pushing the market capitalization close to $700 billion. Compared to its stock price of about $12 in August 2020, the company's stock has surged more than 26 times, rising 6-fold this year alone, significantly exceeding Bitcoin's gains.

"21/21 Plan": Acquiring Nearly 480,000 Bitcoin Over the Next Three Years

In its third-quarter earnings report, MSTR also unveiled the "21/21 Plan," aiming to raise $21 billion through equity financing and another $21 billion through debt issuance over the next three years. The company intends to use this additional capital to purchase more Bitcoin as a financial reserve asset, aiming for greater Bitcoin returns. Based on the current Bitcoin price of $87,500, this means MSTR will acquire about 480,000 Bitcoin over the next three years, roughly 2.29% of the total Bitcoin supply.

"Our ultimate goal is to become the Bitcoin bank," Michael Saylor declared.

Risks and Controversies: High-Risk Investment Strategy Sparks Concerns

Renowned financial author Gao Chengyuan told the China Business Times that publicly listed companies investing in Bitcoin is essentially a strategy of allocating capital to a new asset class. While it can significantly enhance company value and create extra returns for shareholders during a favorable market, this strategy also comes with a high risk, including market volatility and regulatory uncertainty.

Therefore, before deciding to invest in Bitcoin, listed companies should thoroughly assess their risk tolerance, the alignment of their investment strategy with their core business, and market trends and regulatory environments.

"Risk management is paramount. On one hand, it's crucial to closely monitor market dynamics and regulatory policy changes, making timely adjustments to the investment strategy. Simultaneously, it's necessary to establish contingency plans to address potential market volatility or unexpected regulatory shifts," Gao Chengyuan emphasized.

Core Business Suffers Years of Losses, Bitcoin Investment a "Lifeline"?

Despite the substantial gains from Bitcoin investment, MSTR's core software business remains weak. The third-quarter earnings report revealed a 10% decline in MSTR's software revenue to $116.1 million, falling short of analysts' expectations of $1.225 million. The company has reported losses for the third consecutive quarter, with a net loss of $340 million in the third quarter, significantly exceeding the $140 million loss in the same period last year.

However, the current value of Bitcoin assets held by MSTR on its books is only $6 billion, less than a third of its current market capitalization. Should these Bitcoin be re-evaluated at their market value, it would generate substantial income for MSTR. Lance Vitanza, Director of Equity Research at TDCowen, believes that new accounting rules coming into effect next year could transform the loss-making MSTR into a profitable company.

It's important to note that Bitcoin is currently experiencing a new upward cycle, which is a major driver of MSTR's stock surge. In 2022, amid a series of blow-ups, Bitcoin prices plummeted by 64%, resulting in MSTR's net loss of $249.7 million, or $21.93 per share, in the fourth quarter of 2022. Its stock price also dropped by 74%.

Data shows that in the fourth quarter of 2022, MSTR sold 704 Bitcoin for about $11.8 million for the first time. Subsequently, the company increased its Bitcoin holdings through additional acquisitions, bringing the total Bitcoin holdings to 132,500. As of the end of the quarter, the company's book value was about $1.84 billion with a total impairment loss of $2.153 billion, with an average cost per Bitcoin of about $30,137.

Institutional Investor Accumulation Fuels Market Upward Trend, But Potential Risks Remain

Undoubtedly, as one of the major Bitcoin holders, MSTR's Bitcoin accumulation and reduction actions significantly impact the market. Following the announcement of its plan to raise $42 billion to purchase Bitcoin over the next three years, JPMorgan Chase analysts pointed out that Bitcoin's upward trend could receive further momentum from MSTR's actions, "In 2025 alone, MSTR is expected to invest $10 billion in Bitcoin, which is roughly equal to its total purchases since mid-2020."

Therefore, some cryptocurrency investors expressed their concerns to the China Business Times: "Institutional investors like MSTR can drive market gains through their accumulation. However, on the other hand, if they face losses and decide to sell Bitcoin, it will undoubtedly create potential bearish sentiment and increase market volatility."

Zhi Peiyuan, a graduate enterprise mentor at the School of Management, China University of Mining and Technology (Beijing), analyzed that companies should focus on their core business, treating virtual currencies as part of a diversified strategy rather than a sole focus. Investor education is also crucial. Listed companies should foster a rational investment philosophy, which is conducive to maintaining market order and resisting short-term speculation.

Conclusion: Will MSTR's "Bitcoin Bank" Journey Succeed?

MSTR's "hoarding" strategy has garnered significant returns for its stock price, but it has also raised concerns about the company's risk management capabilities and core business performance. With its plan to continue acquiring Bitcoin over the next three years, MSTR will take on greater risks and challenges. Whether its "Bitcoin bank" journey can succeed will ultimately depend on Bitcoin's price trajectory and MSTR's risk control capabilities.