Transcription
MSTR's stock has taken a bit of a beating lately, but underneath the surface, it's still accumulating more Bitcoin per share than ever before. So, why is this happening? Well, in this video, I'll break down the theory behind the stock's decline, and then walk you through some of my charts that suggest this could be one of the best opportunities we've seen this bull market. So, let's get into it.
First up, I'm going to run through the theory behind all of this, so bear with me while I rant a bit about what's really going on, and then we'll dive into some of the charts afterwards. Now, there are some concepts in finance that almost nobody questions. Price to earnings ratios, fair value metrics, and even the idea that money itself is stable. But when you zoom out, you realize that these are just conventions and not laws of nature. And that matters a lot when we start looking at Bitcoin treasury companies like MicroStrategy.
If you're into traditional stock investing, you're probably already aware that at its core, there's one metric that rises above all of the rest: free cash flow per share. Because free cash flow is the actual cash left over after the company pays for all its operations and capital investments. And on a per share basis, it's quite often considered the ultimate measure of a stock's ability to return value to the shareholder. Now, if a company compounds its free cash flow per share at 15% a year, it's considered exceptional. You're effectively doubling the shareholder value roughly every 5 years in this case. And very few companies can achieve that consistently or even get anywhere close. And yet, markets happily value these firms at 25 to 30 times earnings or sometimes over a 100 times earnings. But if we think about that for a second, investors are paying today for growth that might not materialize for over 25 years. There's so many unknowns like will the company even exist then or will it still dominate its industry? Nobody knows. But the growth narrative itself becomes a kind of currency. If enough people believe it, the valuation holds and sometimes for decades. And that's the power of narrative. And honestly, when you step back, it's kind of crazy how unquestioned this is.
Now, if we apply this logic to Bitcoin treasury companies, the MNAV or market to net asset value is essentially the premium that investors are willing to pay on the Bitcoin sitting on the balance sheet. I like to think of this as the new age PE ratio or price to earnings ratio, but in fact, it's more conceptually similar to the price to book ratio, which measures how much investors are paying for each dollar of assets. Although this term is less familiar to the average investor than the famous PE ratio. Interestingly, the current price to book ratio of the S&P 500 is about 5.4x and its historical range has been between 1.5 and 5.5, which is eerily similar to MSTR's historical MNAV. But unlike TradFi, where everyone just accepts concepts like the PE ratio, Bitcoin investors are questioning it. Why should we pay a premium over the underlying Bitcoin holdings? And honestly, it's kind of refreshing to hear. The average Bitcoiner is naturally skeptical of things that Wall Street investors often just take for granted. And this is where I think we're on the verge of a major perspective shift. Trad investors are comfortable paying 30 times earnings for a tech firm compounding free cash flow at 15% per year. Yet, we have a company steadily compounding more Bitcoin every single week, which is an asset that's grown 60 to 80% per year over the past decade. And they're doing it faster than their share dilution. And yet still many investors aren't willing to pay a premium for that. To me, that's an asymmetry screaming to be exploited.
Of course, not every Bitcoin treasury company deserves a premium. And right now, according to Bitcoin treasuries, about 13% of them actually trade below their net asset value, but cheap doesn't always mean good. In TradFi, a stock trading at a five times PE ratio might look like a bargain, but it's usually that cheap because the business is weak or investors don't trust that management are executing on their plan. The same value traps exist here with Bitcoin treasury companies. A corporation trading below their NAV might signal weak governance or a fragile funding model or just a lack of confidence that they'll hold their Bitcoin for the long term. And actually, mathematically speaking, if a company's MNAV is below one, it's actually accretive to the shareholder for the company to sell their Bitcoin on the balance sheet and buy back their shares. And I think that's what might burst this whole treasury bubble eventually. But I'll save that for another time. So far, MicroStrategy hasn't sold a single Satoshi. Even in the 2022 bear market, when the MNAV dipped below one, they refused to sell still. Instead, they restructured debt and continued to hold every Bitcoin. And that's why I don't put them in the same bracket as the other treasury companies. I don't have that same level of conviction in their ability to huddle yet.
So why does MSTR deserve a premium then? Well, first, just like in your traditional stock investments, it's all about a belief in a growth plan. Michael Saylor has been crystal clear. The mission is to accumulate as much Bitcoin as possible per share and never sell. The second reason is their access to capital. Ordinary investors like you and I can't go and get ourselves a near zero interest rate loan to buy Bitcoin with, but MicroStrategy can. And they do this through things like convertible notes, equity raises, preferred shares, basically every lever Wall Street has to offer them. And finally, the third reason is they have operational leverage. When Bitcoin rises, the collateral value of their holdings rises, which lets them raise even more capital. And that's the flywheel effect everyone talks about. They've essentially turned capital markets into a weapon for accumulating Bitcoin at scale.
Now, all this financial wizardry like convertible debt is the same trick high growth tech firms have been using for decades by scaling faster than their competitors without crushing dilution. Only now, instead of chasing free cash flow and earnings growth, MicroStrategy is chasing a limited supply of Bitcoin. And their game plan is working out perfectly. That's why I see MicroStrategy as the Nvidia of Bitcoin treasuries. Just like Nvidia justifies a premium because it can scale free cash flow per share faster than anyone else, MSTR justifies a premium because it can scale Bitcoin per share faster than anyone else. It's the same growth multiplier logic just applied to a different unit of value. And between cash and Bitcoin, I know which asset I want to be stacking at the fastest rate on the planet.
But enough of all this ranting. Let's quickly flip into the charts and see what kind of value we can find here today. First up, looking at the 200-day heat map, it looks like we're about to print our second green dot of this cycle. The first one showed up right at the beginning of the bull run when things were still warming up. And what this tells us is that MSTR is trading right on top of its 200-day moving average, which currently sits at $353. That's a key level for the bulls to hold. And if we rebound from here, this is set up as a very solid entry.
Next, looking through a statistical lens using the Z-score probability waves, we can see that MSTR has traded down to the minus-2 standard deviation level, which is also conveniently priced at $353. Anytime we've dipped below the minus-1 standard deviation level, it signaled that a mean reversion to the upside is statistically a lot more likely than not. In fact, anytime we've tagged the minus one or two levels as a bull market, it's been followed by some pretty explosive price action in the weeks and months afterwards. Now, of course, that doesn't guarantee the outcome. Nothing does. But if you're still a macro bull, which I currently still am, then the probabilities are stacked in your favor in these scenarios. And that's exactly what investing is all about.
And when it comes to mean reversion, my mean reversion oscillator, which is basically an RSI-style metric, is showing deeply oversold conditions. Historically, that's when we've seen at least a short-term bounce in price action, if not more. And finally, for those of you lucky enough to be in a low tax environment, here's one of the most interesting signals. When we price MSTR in Bitcoin, my risk oscillator just hit one of its lowest readings. If you compare trades between these two assets, this is a strong signal to rotate some exposure from Bitcoin into MSTR. But even if you're not actively trading the two, it's still useful to monitor to know how MicroStrategy's stock is likely to behave in relation to Bitcoin. And if you've been around long enough, you know that when MSTR lags Bitcoin like this, it doesn't usually take long before the stock catches right back up again.
So, am I worried about MSTR stock lagging behind Bitcoin's recent run? Not at all. The fundamentals are clear. Their Bitcoin per share keeps going up, and that's really all I care about. It's just like a great stock steadily growing its free cash flow per share. The price might fluctuate in value, but it will always catch up to its intrinsic value eventually. And when the sentiment finally flips and the market starts treating Bitcoin per share the way it deserves to be, MicroStrategy has the potential to melt faces off again.
So to wrap things up, the real story here is just how asymmetric the overall MSTR play really is. The market happily pays massive multiples for tech firms growing free cash flow at low double digits a year. Yet here we have a company compounding Bitcoin faster than share dilution with Bitcoin itself growing at 60 to 80% annually for the past decade. That gap alone is screaming an opportunity to me. And when we layer in the charts, the signals get even more compelling. The 200-day heat map, Z-score probability waves, and my mean reversion oscillator all show oversold conditions that have historically preceded big moves, even if it's only for the short term. Nothing is guaranteed, and this is all dependent on a continuing market. But the odds are clearly stacked in the bull's favor if that's what camp you lie in. And finally, the bottom line is that MSTR keeps stacking more Bitcoin on a per share basis every week. And as long as that keeps happening, the stock will eventually catch up. And when it does, it has shown in the past that it has the potential to absolutely crush it. And that's why I'm bullish in the long term. MSTR isn't just buying Bitcoin. It's providing a blueprint for how companies can dominate the Bitcoin era in the coming decades.
If you're serious about Bitcoin analysis, my full custom indicator suite is now live, built for investors looking to gain an edge through deep cycle signals and advanced on-chain insights. It's available now through the link in the description where you'll also find my free newsletter. And if you found this valuable, hit the like button, subscribe to the channel, and turn on notifications so you never miss an update. And I'll see you all in the next one.
[Music] Heat.
[Music] Hey, Heat.