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About the company similar to a Bitcoin leveraged ETF

A lot of people think that MicroStrategy‘s share price premium is high, and there are various ways to calculate MicroStrategy‘s share price premium on the Internet, and everyone’s statement seems to have a point.

*Further reading:*[ *How to Buy Bitcoin at an 80% Premium From Michael Saylor*](https://www.coindesk.com/microstrategybitcoin-michael-saylor-valuation)

Here, I would like to share my distinctly different point of view, which is based on the following assumptions:

1. I’m bullish on Bitcoin, so I think it’s going to keep going up.
2. All of the company’s digital assets are Bitcoin.
3. Accordingly, I believe all of the convertible bonds issued by the company to be converted into equity in the future.

First, let’s take a look at the percentage of the company’s total assets that will be held in Bitcoin by the end of 2020:

​

https://preview.redd.it/pbrujktszrm61.png?width=903&format=png&auto=webp&s=b5bbe05c92e744e6127a47739e3f6a4174b2bb3f

[MICROSTRATEGY INCORPORATED](https://www.microstrategy.com/content/dam/website-assets/collateral/financial-documents/financial-document-archive/Form-10-K_01-12-2021.pdf)

Depending on my second assumption, we can calculate that Bitcoin accounts for a whopping 71.94% of the firm’s total assets, which even not takes into account the data after the second convertible notes offering.

At this point, about 7,623 shares are outstanding and about 70,470 Bitcoins held, with an average price of $15,964.24.

[https://www.kevinrooke.com/bitcoin?fbclid=IwAR1EputAP3SJmp9tRppA_UKhxl26fdEf4vPjCfvQC7FUOhPwrgcLn1vt9Fw#MicroStrategy](https://www.kevinrooke.com/bitcoin?fbclid=IwAR1EputAP3SJmp9tRppA_UKhxl26fdEf4vPjCfvQC7FUOhPwrgcLn1vt9Fw#MicroStrategy)

When MicroStrategy first issued convertible notes, notes with a face value of $400 million were sold for $650 million, which equals $400 million increments in liabilities but $250 million additional increments in revenue at the same time. Let`s be strict with Microstrategy, if we consider them all notes, which equals $650 million in liabilities, each $1,000 can be converted into 2.5126 shares, namely, there would increase about 1,633 shares in the future.

[MicroStrategy Completes $650 Million Offering of 0.750% Convertible Senior Notes Due 2025](https://www.microstrategy.com/en/investor-relations/press/microstrategy-completes-650m-offering-of-convertible-senior-notes-due-2025)

Let’s pause here and do some calculations:

1. According to my assumption 3, the number of outstanding shares will increase to 9.248 million shares in the future, so let’s say it increase in the present.
2. Based on the closing price of 388.55 on 2020/12/31, we can know that the diluted share price is 320.276, by the calculation of (share price * numbers of original shares) / # of new shares
3. By another calculation of (share price * numbers of shares outstanding) / numbers of Bitcoins held, we can know that if we buy Bitcoins by buying MicroStrategy shares, it is equivalent to $42,030.9 per Bitcoin.
4. On 12/31, the last market price of Bitcoin was $29,220, which is at a 43.84% premium.
5. MicroStrategy‘s average cost of bitcoin is $15,964.24, which means on 12/31, each bitcoin held would have a profit of (29,220-15,964.24) = $13,225.76.
6. In other words, the bitcoin we bought by buying MicroStrategy shares gave us a profit of $13,225.76.
7. The actual price of bitcoin purchased = $42,030.9- $13,225.76 = $28,805.1.
8. On 12/31 the last market price of Bitcoin was $29,220, which is at a discount of 1.42%.

​

https://preview.redd.it/jhx9su3uzrm61.png?width=909&format=png&auto=webp&s=e65b82103bb0581c0020aba9c6317449a7a58f63

At this point, MicroStrategy shares are trading at discount but that’s not very noticeable, so let’s look at its second offering of convertible notes.

The notes with a face value of $600 million were sold for $1.05 billion, equivalent to $600 million increments in liabilities but $450 million additional increments in revenue at the same time. Here, we still hold a strict view to MicroStrategy and consider them all notes, equivalent to $1.05 billion in liabilities, each $1,000 can be converted into 0.6981 shares, representing an increase of about 733 thousand shares in the future.

But unlike the first Convertible Notes offering, MicroStrategy made it clear that he would invest all of the proceeds from the Notes sale in Bitcoin.

[MicroStrategy Completes $1.05 Billion Offering of Convertible Notes at 0% Coupon and 50% Conversion Premium with Bitcoin Use of Funds](https://www.microstrategy.com/en/investor-relations/press/microstrategy-completes-1-05b-offering-of-convertible-senior-notes_02-19-2021)

As of press time, the number of shares outstanding inherited from the above calculation is approximately 9.256 million, and MicroStrategy holds approximately 91,326 Bitcoins at an average price of $24,214.

Let’s do the same calculations as the above:

1. According to my assumption 3, the number of outstanding shares will increase to 9.981 million shares in the future, so let’s say it increases in the present.
2. Based on the closing price of 803.75 on 2021/03/11, we can know that the diluted share price is 613.865, by the calculation of (share price * numbers of original shares) / numbers of new shares
3. By another calculation of (share price * numbers of shares outstanding) / numbers of Bitcoins held, we can know that if we buy Bitcoins by buying MicroStrategy shares, it is equivalent to $67,089.2 per Bitcoin.
4. On 03/11, the last market price of Bitcoin was $24,214, which is at a 15.72% premium.
5. MicroStrategy‘s average cost of bitcoin is $24,214, which means on 03/11, each bitcoin held would have a profit of (57,975-24,214) = $33,761.
6. In other words, the bitcoin we bought by buying MicroStrategy shares gave us a profit of $33,761.
7. The actual price of bitcoin purchased = $67,089.2- $33,761 = $33,328.2.
8. On 03/31 the last market price of Bitcoin was $57,975, which is at a discount of 42.51%.

​

https://preview.redd.it/jkcu3vup2sm61.png?width=914&format=png&auto=webp&s=56e511c021ea0234e563b66aae28af304eb87fac

See the exaggerated discount? That’s surely a much bigger discount than you think, and it’s still there!

Some argue that Bitcoin assets don’t actually make money for the company unless they are sold, let alone the shareholders. But if you think of Bitcoin assets as a lot of gold, when the price of gold goes up, you don’t have the same doubts about the company, right? In the future, digital currency assets will become more and more popular and accepted by traditional financial institutions. If any traditional bitcoin-related financial business is to be promoted, it will be better for people who hold more Bitcoin assets, whether they charge interest or deposit fees.

However, compared to the “increase in the value of MicroStrategy stock bought now and then”, the profit from the business at that time was not worth mentioning.

*Further readings:*

[JPMorgan To Launch Cryptocurrency Exposure Basket With 11 ‘Bitcoin Stocks’ Including MicroStrategy And Square](https://finance.yahoo.com/news/jpmorgan-launch-cryptocurrency-exposure-basket-152716603.html)

[Canada’s 3rd Bitcoin ETF Just Launched: Here’s Why it’s the Best 1 Yet!](https://www.fool.ca/2021/03/11/canadas-3rd-bitcoin-etf-just-launched-heres-why-its-the-best-1-yet/)



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