How Corporations Are Pumping Your Bitcoin Bags

TL;DR

• The genius of MicroStrategy’s BTC treasury = $MSTR buys BTC → the more they have, the more exposure they get to its price appreciation → which attracts investors → which pushes their stock price up → (repeat).

Full Story

So Japan’s Metaplanet just bought another $1.2M worth of Bitcoin for its corporate treasury, and it got us wondering…

What’s so great about this ‘corporate Bitcoin strategy’?

For that, we looked to the guy who created it, Michael Saylor, and his company, MicroStrategy ($MSTR).

Let’s start with some stats:

• Over the past decade or so Bitcoin has increased ~10,000%

• $MSTR started buying BTC in Aug 2020, with an average purchase price of $35k (which means they’ve made an ~80% return so far)

• In that same time the S&P 500 (an index of America’s top 500 company’s) has gone up 63%

So…

If MicroStrategy had’ve just invested in a fund that tracked the S&P 500, they would have had a MUCH safer margin for error (Bitcoin is highly volatile, the S&P 500 is not).

So why is this not going down as the dumbest financial move of all time?

Simply put: $MSTR’s Bitcoin strategy creates a flywheel effect, while buying the S&P 500 does not.

See, no one is going to buy MicroStrategy stock because the company holds S&P 500 shares.

But when Saylor launched $MSTR’s Bitcoin strategy, it was one of the only ways for stock traders to safely/easily get exposure to Bitcoin’s upward price movements (from a regulatory standpoint).

So all of a sudden, $MSTR stock became a magnet for investor dollars — and with that, its market cap increased.

Then, and this is the wildest part…

$MSTR started to issue/sell new shares, diluting existing shareholder value, and use the funds to buy more Bitcoin…

Diluting the value of existing shares, by making and selling more of them? That typically leads to a stock’s price falling.

But in MicroStrategy’s case, it increased share value, by — get this — 10x over roughly four years.

The flywheel powering this increase works like this:

MSTR buys Bitcoin → the more Bitcoin they have → the more exposure they have to Bitcoin’s price appreciation → which attracts more investors → which pushes their stock price up → which allows them to buy more Bitcoin.

(Rinse/repeat).

And all the while, $MSTR has its traditional software business to weather any storms in Bitcoin’s price fluctuation.

Now, here’s the cherry on top:

As other companies, like Metaplanet, start to follow suit — it will only help to stabilize and push Bitcoin’s price higher over time.

And MicroStrategy (along with every other BTC holder out there) will be massive beneficiaries of this growth.

Very cool.