Fair enough that the path to get to and from $85k to next year or even further matters for a derivatives strategy. So let’s assume MSTR is completely flat in perpetuity for next 5 years at $85k, no big rate reductions to lower their dividend payments and in 2028 they need to either issue equity or sell some BTC to fund current $0.9B burn rate (and let’s assume the 5 yrs of steady above market pref returns does not attract new capital). If mNAV is below 1 they sell BTC to do for next 2 years to get to 2030 that’s 3% of holding. So what - they need a 3% rise in BTC $ price after 5 years to stay flat? I only think this matters if you think BTC will not compound 20-30% CAGR over next 10-15 years with up to 5 year periods of sideways action. They can bridge 5-10 years if they have too and they will still have largest corporate stack by an order of magnitude.
Discussion
It's a tale of two cities right, with the stock being city number two. If they become a zombie company that just sits on bitcoin without growing, the stock price will collapse because the current valuation is based on growth, not just holding. Your 20-30% CAGR, that’s a fair bet, but their current debt and preferred dividends (like the 10.5% rate on some of their 2025 issuances) are fixed costs. If Bitcoin goes sideways for 5 years, those costs compound against them. To stay flat they need bitcoin to basically outperform their weighted average cost of capital. If their capital costs 10% a year and Bitcoin does 0% for 5 years then investors would have been significantly richer just holding regular old bitcoin directly and avoiding the 10% annual fee (or however you wanna call it) of this financial engineering. ouch.
So if the cash shortfall in 2026 and 2027 is say $1B, and they sell bitcoin to cover, then okay (still assuming here price stays flat around current price). Then in 2029 what's the cash shortfall? 3 billion? 4 billion (it'll be big). And 2030 much the same. And of course this constant selling is going to impact the overall price.
So yeah, they don't die, but they become irrelevant. Or to say it another way, they become about as relevant as an old wallet with a ton of bitcoin in it whose owner has long since vanished. Which is fine I'll grant you, but it's not the current play.
Listen if you think BTC stops growing I concede this a a bad idea. However, their fixed costs (10.5% on $8B) are small relative to their capital stack ($58B btc) so they can bridge any market type short term. Those fixed costs are their product, so in a scenario where their prefs continue to grow rapidly as they are, they keep growing their capital stack faster than just holding BTC - this is easy to imagine if btc does 20-30 CAGR% over medium to long term. However it’s balanced by adding counterparty credit risk to operate, there is no free lunch.
I’m not saying you or anyone should invest or not, but to imply they have a risk of collapse in a growing or short term stagnant BTC market is wrong I think. Their structure makes sense relying on two key factors -> counterparty risk of operating the business + BTC going up. Either of these fail MSTR will fail too.
Thanks for the chat. 🙏
I'll agree with you there. This whole thread is in response to the assertion that "almost all of [the treasuries] are in the green down to ~60k", and that without any price rise MSTR is still sitting pretty.
Of course if the price keeps going up steady (or better yet jerkingly) then MSTR's model keeps working and it's all good.