Transcription
Hello everybody.
So today I want to cover MicroStrategy.
Frankly, there wasn't much happening with MicroStrategy this week. It went down, but it went down in line with Bitcoin. I mean, it's roughly not even a 2X Bitcoin; it's like, what, 80% more volatile than Bitcoin, roughly.
The valuation, as far as I'm concerned, pretty much hasn't changed. It's still 1.9X BTC, which is what MicroStrategy is trading at. It had dropped lower; right? It wasn't 1.8, then went back up.
I'm sure when we get back and Bitcoin shoots back up with optimism in February—we know February tends to be a good month for Bitcoin. No financial advice, but in my view, that price to NAV is not going to stay as low. I think it's going to increase.
And that's the point of this spreadsheet: what if the price to NAV trades at a 5? Well, with the number of Bitcoin on the balance sheet right now, it'd be an $800 price target for MicroStrategy. What if it trades at 7X? And then what if you use the yield and you treat the yield like income, and you say it's income, and you apply a ratio on top of a yield? What would the price be?
Well, if that were to happen, that would be insane prices. I don't think that's going to happen anytime soon. The market is not going to, you know, think of it like that. The market is not used to having income profits flow through the cash flow statement. In fact, they don't call it a profit.
The playbook is to accrete via the issuance of equity; it's not recognized as profit. My guess is it may take a decade or two for people to start thinking of companies like that.
MicroStrategy is a special asset; it's a Bitcoin asset traded and being judged by traditional eyes. So I think the better way to look at it is the price to NAV. If you look at appreciation expansion in that price to NAV, maybe a 3X, and then hopefully it sells at a 3X and actually accretes but generates the yield thanks to the price to NAV being high.
So again, all of these price targets have to be taken with a huge grain of salt. This is not financial advice. But anyways, I was tired of getting so many comments: "What's your target? What's your target?" These are rough targets.
Let me move on and tell you about the catalysts that are coming. You should use Gro, by the way, or LMA Free. I used to be a big fan of LMA Free; I now almost exclusively use Gro. I find it so powerful.
The catalysts, of course, summarized by Grok, but I've heard them in dozens of podcasts. Of course, we have the adoption of the new accounting rule that's going to come up at the next quarter. It's now mandatory, so he's going to adopt options expiry.
Everybody's talking about that January 17. There's a debate in the community as to whether market makers are prepared, whether they already hedged and covered, or if they didn't. If they didn't, and a lot of people call their shares, you could have a squeeze. A lot of people are excited about that.
I'm not a trader, so I don't care if we don't get a squeeze; it doesn't matter to me. But a lot of people sell options; they sell covered calls, so they're hoping for that squeeze. They're like, "Oh, there's a squeeze when you sell a covered call."
But the asset is too explosive for me to play options, at least on the upside. Playing the selling the covered call game is too volatile for me. Writing puts, writing cash-secured puts to try to get it at a lower price, I find that much more compelling.
But that's the options; it's a different game, not the topic of this video. We are very excited about preferred stock. I am very excited about preferred stock.
And you know, finding out probably on Sunday, we're going to find out if he did something with that or not, or if he just did the ATM. But I'm pretty sure he's going to buy on Sunday, and I make it a habit to make my Monday video.
So I'm excited. I think the preferred stock market is going to be bigger than the convertible debt over the long run because preferred stocks are actually a bigger market.
Lastly, we have the possibility of an S&P 500 inclusion. I don't get my hopes up on this one because there's a committee that you have to get through, and the committee is very traditional.
So I don't get my hopes up. But again, having a discussion with Grok, in order for them to have enough income in the trailing four quarters, they need to have positive GAAP income in the trailing past four quarters that precede the inclusion.
In order for them to post that positive income, Bitcoin needs to be above $98,200. This is a Gro calculation for you; I didn't do a print screen on this one, but that's roughly what I've heard too. It needs to be close to $100,000 for them to qualify for inclusion.
But then they still need to get in front of that committee. Just like that committee held back Tesla for a long while back in the day, I'm sure they will hold back MicroStrategy too. So I wouldn't get my hopes up on that.
Let me move on again with my overview. You may remember last week I walked a bunch of time and did this 10E Outlook valuation spreadsheet. It's available on my Patreon. I updated it with new numbers.
So you see I'm just giving you my price target for the next three years because this is a public video. If I show you my price targets for 2035, yeah, it's too nuts. I don't want to seem like I'm crazy, so I'm just showing you until 2027.
If the price to NAV doesn't change, I'm getting a price target of $1,700 for the stock in 2027, assuming A, the price to NAV doesn't change; assuming B, they're able to generate 20% yield this year, 19% yield in 2026, and 18% yield in 2027.
Assuming C, that the Bitcoin price target holds from the Bitcoin 24 model. Sor published this Bitcoin 24 model on GitHub; you may download it there, and you can see that he's predicting in December 2027 a Bitcoin at $300,000.
If you are on Twitter and you hang out and you read all of the predictions that people have, you know you have people predicting $300,000 Bitcoin for 2025. So I actually think Sor's prediction for 2027 and 2028 are fairly bearish, at least compared to a lot of the bulls out there.
And that's his base model; that's his base case that I use. I use his model because I know that's what his team—he's got a team of about 10 people at the treasury of MicroStrategy—that's what they estimate; that's what they work with.
So I think it makes sense to work with the same numbers. You know, it's crazy that this whole strategy—I mean, MicroStrategy could essentially be a company of 10 people, and that's it.
I've made this case before that they should just spin off the software business because it confuses people. If you're a software buyer, you may be confused that they're doing more Bitcoin than anything.
But maybe we need to keep the software business in order to be included in the QQQ, so that's also something that some people were fearful of. But thank goodness for QQQ; it's a systematic inclusion.
It's all about a system; it's all about a formula. It's not about qualitative analysis and thinking of committees and buy committees like the S&P. You're going to have to get through a committee, which is a tougher thing.
So anyways, I'm assuming the yield they target—they've guided they're going to do 6-10% yield for the next three years. No, they're going to do much more than that, in my view.
No financial advice, but it's pretty clear to me that they're going to do much more than that, especially with the current price to NAV at 1.9. You can just, you know, on a day with a lot of volume, you can just dilute and accrete, dilute, buy, dilute, and accrete.
And this is where I'm not going to go for these slides again, but you may remember my video "Top Three Reasons to Buy." I explained this; this slide got a lot of commentary in my prior video.
I explained how yield works, how a Bitcoin yield works, and I suggest you go back through the calculation if you're interested in knowing the mechanics. You can pause here.
Some people ask me, "Oh no, well, it should go from 33% to 36% if it grows by 10%." But that's the thing: when MicroStrategy dilutes by 10%, he dilutes on the inflated valuation of MicroStrategy.
If he dilutes, like if he issues an extra 100 shares and he dilutes by 10%, he's not going to buy only 33% of $100 worth of Bitcoin; he's going to buy the whole $100 worth of Bitcoin. Does that make sense?
So whenever he dilutes, it dilutes because if he dilutes by 10%, it's not like he's going to put 3.3% in Bitcoin and then keep 6.6% in cash. No, there's no cash on the MSTR balance sheet.
Whenever he dilutes, the whole thing goes into buying Bitcoin. So it's actually 33.3% plus 10%, which becomes 43%. Your dilution of 10% meant that he was able to capture the premium for you.
So actually, in scenario one without dilution, you may have a stock where you have 33.3% of Bitcoin, and after a dilution, that same stock has 43.33% of Bitcoin. But your ownership dropped by about 10%.
So you actually now have 39.39% worth of Bitcoin. Yes, you own less MicroStrategy, but MicroStrategy owns much more Bitcoin than you own less MSTR.
I suggest you go through these two slides again to understand the mechanism. I need to make an overall video on how the yield works.
But you know, the more I think about this yield and really the genius nature of this, the more I'm like, you know, Saylor, you should even dilute at 1.9. Just keep diluting, keep diluting, keep diluting.
That's the right thing to do as long as the market grants you a price to NAV under 1.5. In my view, you should just keep diluting. It's too creative.
And yeah, short-term holders are upset if you play the options game for 10 days from now, right? And you get, I don't know, out-of-the-money call options, or you play the options game for 10 days out, or even a month out.
You're going to be very angry about this, very, very angry. But if you don't do that, that's not going to bother you.
Anyways, it's like as a long-term holder, Saylor has said it before: he works for the common stockholder. So the options holder, the person owning the options, is not the common stockholder.
You know, that's the problem with options. You've got to time exactly where the stock is going to be whenever your strike happens, whenever your expiry date is. That's where it's much tougher because it's a short-term prediction.
Over the long run, I am fully confident with MicroStrategy, and all of my position in MicroStrategy is in the common stock, the common shares, all of it.
As you know, and this is becoming a consensus—I listen to a lot of podcasts about this—the idea that he's going to become a Bitcoin bank after 2030, generating a Bitcoin yield, is becoming a consensus in the MSTR community.
This is a slide I've already used in my prior video, so I won't spend too much time on it. But once you can't accrete via dilution because everybody does it now, once you can't do that, and that may be 2030, right?
That's going to be already an enormous upside. There will be a point at which MicroStrategy cannot do that anymore because the system is well understood, and the game-theoretic advantage of being first does not apply anymore.
That's going to be maybe 2030, 2032; I don't know. But when that happens, there will be the opportunity to earn Bitcoin yield.
Bitcoin yield means things like borrowing against your Bitcoin to buy more Bitcoin. It means creating instruments backed by Bitcoin. He's already doing that to a lesser extent, but you could do it in a more extensive extent.
Regular bonds, I've always said, could be bigger than actual converts or preferred shares. You can lend Bitcoin; there are many ways to do that.
You can play with Bitcoin with real estate included in real estate. You can wrap it on a token and list it on layer ones. You can mint stablecoin with BTC as collateral.
You can list USD/BTC pairs. So let's say you mint a stablecoin with your Bitcoin as collateral. You mint it; now you have stablecoin, and then you take that stablecoin, you pair it in a liquidity token with another Bitcoin, and then you go list it on the various DEXs like, you know, the Jupiters of the world and all of that, Uniswap, whatever, and you list that pair and you make money on that pair.
But the USD is just USD that you minted via your BTC that you used as collateral to create a stablecoin.
So this is modern-day blockchain finance. There are going to be a lot of opportunities like this down the road for MicroStrategy. I have little doubt about this.
You could just lend it to DeFi; you can lend it to banks who want to short it. You can lend it to too-big-to-fail banks. This is just scratching the surface.
There will be many ways to earn money on a stack of Bitcoin, just like there are many ways to make money in New York City via real estate. Many uses for real estate in New York City, many uses for Bitcoin in the digital finance world and the blockchain finance world.
So that's the view, but that's a long-term view, of course, and that conversation is early right now.
Let me conclude this video with analogies. I've used this analogy before. This analogy is simply that MicroStrategy is a black hole.
You know, you have to money mass; the money stock is growing. There's ever more money. Half of that money goes towards assets and sticks to assets.
Whenever we call assets, we could call them long-term capital; they stick to long-term capital. And within that, nested within that long-term capital, is MicroStrategy.
MicroStrategy is becoming a bigger share of, of course, the equities ETF. I have a triple Q, but also the bond ETFs. You've seen my videos about convertible bonds from BlackRock; they become a bigger part of the ETF.
Actually, in the convertible bond ETF of BlackRock, MicroStrategy is the number one holding at almost 5%. MicroStrategy bonds, so they're incorporating themselves within the traditional financial system.
Once money goes from money, the money stock grows, the money supply increases, it sticks to long-term capital in the form of equities and bonds, and then it sticks to MicroStrategy.
When MicroStrategy gets that money via the issue of new ATM share offerings, the minting of new shares, or via the issuance of debt, it gets to MicroStrategy.
MicroStrategy converts it entirely into Bitcoin. That's why MicroStrategy is kind of a Trojan horse within a black hole.
It's a Trojan horse within a black hole; that's kind of the analogy that I've used before. I love this analogy.
Saylor famously—and this has been all around the internet—has released this new analogy, which is an analogy of a waterfall. Thank you, Gro. That's why I say if you're not using AI, you may be falling behind.
Thank you, Gro. I had Grok generate this picture for me. So you can see, imagine this lake right here. This lake is traditional finance, and traditional finance is low volatility; it's cozy, it's peaceful, right?
You have your banks over there and your classic traditional financial market over there, etc. And you do your little TradFi business and your credit cards and whatever.
And this is the waterfall, right? The closer you get to the waterfall, the more volatility varies, and it becomes dangerous. I mean, frankly, Gro drew me a very friendly waterfall here, but imagine a more tumultuous waterfall.
It's more tumultuous, right? What is it? White water rafting and all of that. You want to be careful if you get close to the edge; it's more tumultuous.
But once that volatility here, that tumult here, is through, you can fall down the waterfall. It's volatile; it moves fast. But once it's down in the hole, once it's down the hill, it goes into MicroStrategy.
Once it goes down the hill, thanks to gravity again, it can't go back up, and it stays within MicroStrategy. MicroStrategy is your Trojan horse for Bitcoin.
So it's a one-way fall. Traditional finance doesn't see it, and then gravity does its way, and traditional finance falls into MicroStrategy.
Once you fell into a hole, you fell down the hill to get into MicroStrategy; there's no going back. That's a form of hyper Bitcoinization.
It's a way for Bitcoin to get into the financial system. You can understand how people who are in the waters far out on that lake, they're not close to it, will eventually fall because gravity works.
But it may take them 20 years. Right now, if we own MicroStrategy or if we're thinking about owning MicroStrategy, we're at the edge of a waterfall.
It's volatile, but volatility is also vitality and can also be very exciting. Nobody would want to go, you know, nobody would go see Niagara Falls.
The reason why people go see Niagara Falls is because it's the volatility that makes it amazing. It's one of the most beautiful things.
I mean, there are also these waterfalls in Africa—Victoria Falls, is it? People travel to go see them. Why? Because it's exciting.
That's where everything happens; that's what everybody wants to see. There are tens of thousands of peaceful lakes that are not nearly as desirable from a viewing standpoint as beautiful waterfalls.
So this is a beautiful analogy, I think, although I still prefer my black hole one. It's not mine, by the way; the black hole analogy is used by all Bitcoiners.
Anyways, this was not investment advice. This was not financial advice; this is just entertainment. Hoping you were entertained. Please like, please subscribe. Thank you for watching, and have a wonderful, wonderful day.