Saylor, MicroStrategy, and the Shifting Bitcoin Treasury Model

Michael Saylor’s MicroStrategy is facing higher and higher pressure as its Bitcoin premium starts to shrink.

Michael Saylor, the executive chair of MicroStrategy, has built the largest corporate Bitcoin treasury in the world. 

The company, which was recently rebranded as Strategy, now holds more than $70 billion worth of Bitcoin. For years, its stock has traded at a massive premium to the value of its Bitcoin stash, as investors paid extra for leveraged exposure to the asset.

That premium, known as mNAV (market-implied net asset value), was the major source of Saylor’s strategy. Saylor, by issuing new shares at high premiums, helped MicroStrategy raise capital to buy more Bitcoin and vice versa. 

Now, however, that cycle is showing cracks.

What is mNAV and Why It Matters

Think of the mNAV ratio as a comparison of a company’s market cap to the value of its Bitcoin holdings. A ratio above 1 means investors value the company more than its Bitcoin. However, a ratio below 1 signals the opposite.

For much of the last bull run, MicroStrategy’s mNAV was far above 2. At its highs, investors paid 3.4 times the value of the firm’s Bitcoin just to gain exposure. Today, however, that premium has fallen to about 1.5. 

The MicroStrategy bubble could be at risk of popping, according to Miles Deutscher | X

This means that Investors are no longer willing to pay high premiums for Bitcoin exposure through MicroStrategy.

This matters because the company’s strategy depends on issuing more and more shares at a premium. If the premium keeps shrinking, the math behind the “Bitcoin flywheel” will start to break down, and trouble is likely to follow.

Saylor’s New Equity Guidance

Until recently, Saylor promised not to issue new shares below 2.5 mNAV. That promise reassured shareholders who were worried about excessive dilution of the company stock. 

In August, however, Saylor dropped the ball and is going back on that promise..

Under new rules, MicroStrategy will actively issue shares above 4x mNAV, issue opportunistically between 2.5x and 4x, and may still issue stock below 2.5x to cover debt, dividends or other needs. 

This means that if the ratio falls below 1, the company could even issue debt to repurchase shares.

Saylor explained the change as necessary. He said that this move was undertaken to maintain the capital markets’ flexibility. However, some investors see it as moving the goalposts. 

Less than a month earlier, the company promised not to dilute shareholders at these lower levels.

Market Reaction and Investor Worries

MicroStrategy stock has dropped to its lowest level in four months after the change. The decline came alongside a pullback in Bitcoin and general weakness across crypto treasury firms.

For some investors, the reversal has damaged trust. One shareholder noted that he had bought shares after Saylor’s public promise not to sell below 2.5 mNAV, only to see that promise reversed weeks later.

Others argue that the change may give MicroStrategy the strength to keep buying Bitcoin during downturns. The company, issuing stock even at thinner premiums, can continue buying Bitcoin without being locked out of the market.

The Risk of a “Spiral of Doom”

Some analysts continue to warn that issuing shares at lower and lower premiums could create a negative cycle. 

In other words, if MicroStrategy dilutes shareholders too often, its stock price could fall further. That would force the company to issue even more shares to raise the same amount of money. 

Rising debt costs could make the problem worse.

Former Goldman Sachs analyst Dom Kwok described the risk as a “spiral of doom.” In that scenario, MicroStrategy might eventually be forced to sell some of its Bitcoin holdings to stay afloat.

The worst part of this is that the risk doesn’t affect Strategy alone. Out of 167 listed crypto treasury companies, about 13 per cent are already trading below an mNAV of 1.

This means that their market value is less than their crypto holdings.

Overall, Saylor’s strategy depends on three incredibly weak pillars. Market confidence, access to capital and his leadership. 

If confidence wanes, if capital markets tighten, or if leadership falters, the premium that holds the strategy up could collapse, and the effects on Bitcoin’s price might be severe.

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