$MicroStrategy (MSTR.US)$ This marks the ninth consecutive week of significant shareholding increase. $Bitcoin (BTC.CC)$ Moreover, the company's stock price continues to drop while purchases increase, what is the mystery behind this 'mysterious operation'?

On the 6th, Craig Coben, former head of global equity capital markets at Bank of America, pointed out in a column for the Financial Times in the United Kingdom that MSTR's strategy seems to have a structural problem: the company tends to buy more when Bitcoin prices are high. This strategy faces significant risks. If Bitcoin falls, MSTR's net asset premium would shrink, stock prices would drop, and the $7.2 billion convertible bonds may face expiration repayment instead of conversion into new shares.

Currently, the price of Bitcoin remains around 0.1 million USD, but MicroStrategy's stock price has declined. Since the peak of 543 USD on November 21, the company's stock price has fallen nearly 20%.

Consequently, the company's premium on net asset value has dropped from a high of 3.8 times to 1.9 times. Notably, MSTR executives have also been selling large amounts of company stock, cashing out $0.57 billion in 2024 alone.

Meanwhile, MSTR has accelerated its pace of Bitcoin purchases. The $21 billion "par" stock issuance plan announced last month was originally designed for a three-year term, but two-thirds of it has already been completed in just two months. According to analysts at JPMorgan, MSTR accounts for an astonishing 28% of the inflow of funds into the cryptocurrency market in 2024.

While MSTR sells its company stocks, it is also heavily investing in Bitcoin. Analysis suggests that by selling stocks at 2-3 times net asset value, MSTR is effectively purchasing Bitcoin at a significant discount.

Competing for premiums!

MicroStrategy seems to be undertaking an urgent action to expand its financing scale. Last Friday, the company announced plans to issue up to $2 billion in perpetual preferred stock this quarter to purchase more Bitcoin. Just over a week ago, MSTR also sought shareholder approval to increase the number of shares from 0.33 billion to 10.33 billion, an increase of over 3000%.

Coben believes this behavior pattern suggests that the company’s leadership is aware that the current net asset premium may not be permanent, and they are racing against time to take advantage of this opportunism.

The behavior of MSTR's senior management has also drawn attention. The company’s chairman, Michael Saylor, openly condemned diversified investments, even suggesting that investors should mortgage their property to buy Bitcoin. However, other senior executives of the company have been selling off company stock, cashing out $0.57 billion in just 2024.

Coben points out that MSTR tends to buy more when Bitcoin prices are higher. During the cryptocurrency winter of 2022-2023, when Bitcoin prices hovered around $0.01-0.02 million, MSTR's purchase rate noticeably slowed down. But as Bitcoin prices soared, the company's buying frenzy followed.

As long as Bitcoin prices continue to rise, the company’s net asset premium can be maintained, which is the key to the entire strategy.

However, this strategy faces significant risks. If Bitcoin prices fall, the net asset premium shrinks, stock prices decline, and the $7.2 billion convertible bonds may face the risk of being repaid at maturity rather than converted into new shares. Considering MSTR’s software business is in a loss-making state and Bitcoin does not generate cash flow, this will pose serious challenges for the company.

Coben believes that MSTR's current large-scale stock sell-off is to circumvent this risk:

By selling Stocks at 2-3 times the net asset value, MicroStrategy is effectively purchasing Bitcoin at a significant discount.

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Editor/rice