The stock price hit a new high. How did Microstrategy become a "perpetual motion machine" for rising prices?
"Microstrategy has become a monster. It could become the most valuable company in the world."
Original author: Glenn Hodl
Original translation: Azuma, Odaily Planet Daily
Editor's note: The trend of the cryptocurrency market is still confusing, but Microstrategy (MSTR), which is strongly tied to Bitcoin, has recently set a record high in stock price - US stock market shows that on October 9, MSTR was close to the $200 mark, reaching a high of $198.35.
Recently, overseas KOL Glenn Hodl gave his own analysis on Microstrategy's strong performance. Gelnn believes that even if the price of Bitcoin no longer grows, Microstrategy can use the market's differences in valuation models for commodities and companies to create a "perpetual motion machine" that can sustainably push up its own market value, which will eventually make Microstrategy the world's largest company by market value.
The following is the original content of Gelnn, compiled by Odaily Planet Daily.
Microstrategy CEO Michael Saylor seems to have found a "perpetual motion" economic model.
I'm not sure if the mechanism can be stopped, but if it continues to work, Microstrategy is likely to become the most valuable company in the world.
The reason is that the way a company is valued is fundamentally different from the way commodities such as Bitcoin are valued, which creates a paradox in the market's valuation of Microstrategy (MSTR) - commodities are always traded at current prices; while companies are traded at a discount to their future value.
Therefore, if you believe that Bitcoin will become more valuable at some point in the future, then the Bitcoin held by Microstrategy will and should become more valuable.
This may create a "second-order effect", that is, Microstrategy can continue to capture this premium expectation, which not only enhances the attractiveness of its narrative, but also helps to push its market value higher.
Some readers may still not understand it, the following is a static and super-simplified version.
There is a company that has issued 10 shares and holds 10 bitcoins.
Assume that the current spot price of bitcoin is $2, and the market expects it to rise to at least $4. According to the model of valuing the company (trading at a discount to its future value, assuming a 50% discount), the company's stock price will be $3, a 50% premium to its net asset value.
The owner of the company sees an opportunity here, so he issues 2 new shares at the market price and uses the $6 to buy 3 bitcoins from the market.
Now, the company has issued a total of 12 shares and holds 13 bitcoins, and the ratio of "bitcoin holdings/share issuance" has changed from 1:1 to 1.08:1.
The key point is that the company now has a market cap of $36 and a treasury value of $26, the premium has shrunk to 38% (or the discount has increased to 62%), but the market will still value the company at a 50% discount to future value, which will push the company's market cap up to $39, corresponding to a single share price of $3.25.
After the premium is fixed, the company's boss can repeat the above path again, that is, issue 2 new shares at the market price, and then use the $6.5 to buy 3.25 bitcoins from the market.
Now, the number of shares issued has reached 14, and the number of bitcoins held has reached 16.25, and the ratio of "bitcoin holdings/shares issued" has changed from 1.08:1 to 1.16:1.
Later, as the market repairs the premium again along the path of "valuing the company at a 50% discount to future value", the company's market value will be pushed up to $48.75, corresponding to a share price of just under $3.5.
So far, although the price of Bitcoin has not changed at all and the premium rate has returned to 50%, the company's "Bitcoin holdings/shares issued" ratio has increased by 16%, and the share price has also increased by about 16%.
At this point, the prototype of a monster has been born. The company can repeat the above process over and over again, using the market's differences in commodity and company valuation models to create a perpetual motion machine, and the market will continue to increase its valuation, one because the future value of Bitcoin will increase, and the other because the company's "Bitcoin holdings/shares issued" ratio is also increasing.
Microstrategy is this monster, and it is expected to become the company with the largest market value.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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