The MicroStrategy-Style Treasury Strategy: Why It Works and How to Value It

Introduction:Cryptocurrency markets have inspired creative financial maneuvers. For example, one can put $100 of crypto into a corporate “pot” and find that investors will pay $200 for shares in that pot – seemingly free money. Transmuting real assets into blockchain tokens may be innovative, but transmuting tokens into publicly traded stock has proven extremely lucrative. In other words, a company that holds crypto can see its own stock trade for far more than the value of the crypto it holds. As one commentator quipped, an important discovery of the crypto era might be that “corporations can own real-world assets and sell shares of themselves on the stock exchange”¹. This raises an intriguing question: Could the same be done with other assets (e.g. real estate or commodities) by putting them into a corporate wrapper and issuing stock? While such schemes might not always be feasible², the success of MicroStrategy’s “Bitcoin treasury” strategy – where a company raises capital to buy crypto and sees its market value soar – suggests that someone could even attempt a meta-version of it. (Imagine taking over a small public company and announcing it will raise $200 million to buy MicroStrategy’s own stock – would that stock then double in value to $400 million?)

The MicroStrategy Treasury Strategy in a Nutshell:MicroStrategy (now rebranded as “Strategy” Inc.) was originally a software firm, but in 2020 it pioneered the idea of a corporate Bitcoin treasury. The company invested its cash into Bitcoin and kept raising money (via stock and bond issuances) to buy more Bitcoin. Over a few years, MicroStrategy accumulated hundreds of thousands of BTC. This “Bitcoin side hustle” went stratospheric: MicroStrategy’s share price rose roughly 20-fold, catapulting its market cap to tens of billions of dollars. Effectively, MicroStrategy became a publicly traded Bitcoin fund, except that its stock began trading at a huge premium to the value of its Bitcoin holdings. By late 2024, its market cap was about double the value of the BTC on its balance sheet. In other words, investors were paying about $2 for every $1 of Bitcoin inside the company – a phenomenon one Reddit observer described as “selling $1 bills for $1.66”. This appears to be “free money” for the company and its shareholders, funded by investor enthusiasm.

Why Is This Strategy “Working”?Several fundamental and structural factors help explain why investors are willing to bid up the stock far above underlying asset value:

• Limited Access & Convenience Premium: Many investors (both institutional and retail) face barriers to buying crypto directly – whether due to regulatory restrictions, mandates, custody/security concerns, or simply inconvenience. For such investors, buying a familiar public stock is easier than navigating crypto wallets. MicroStrategy offered a convenient proxy for Bitcoin exposure through any brokerage account or retirement fund. Before true Bitcoin ETFs were widely available, MSTR became a surrogate ETF, commanding a “regulatory/convenience premium” for this access. Investors essentially paid extra for the liquidity and safety of a stock over holding crypto directly (e.g. no worries about private keys or crypto hacks).

• Expectations of Future Asset Growth: Unlike a static fund, MicroStrategy signaled it would keep accumulating Bitcoin over time using new capital. Investors came to expect that the company’s Bitcoin holdings will grow well beyond the current amount. In valuing the stock, the market isn’t just pricing the current BTC per share – it’s also pricing in the future BTC per share the company might acquire. This is analogous to valuing a growth company: investors pay a premium now in anticipation of more assets later. If each share today represents 0.001 BTC, but investors believe that through continued raises it will represent 0.002 BTC in a few years (and that Bitcoin’s price will also rise), they will bid the stock above current NAV. Analysts estimate that a large part of MSTR’s 100%+ premium to NAV comes from “market recognition that the company will likely continue purchasing more Bitcoin over time,” as well as an embedded expectation that each Bitcoin itself will appreciate in value. In effect, the stock market is discounting the future value of a growing hoard of Bitcoin, not just the present holdings.

• Leverage and “Bitcoin Beta” Amplification: MicroStrategy evolved into a leveraged play on Bitcoin. By issuing debt (e.g. convertible bonds, preferred stock) and new equity to buy Bitcoin, the firm amplified its exposure. This means MSTR’s stock tends to move more sharply than Bitcoin itself – essentially behaving like a call option on Bitcoin with embedded leverage. For bullish investors looking to maximize gains from a BTC rally, buying MSTR can seem attractive because it offers ~1.7× the sensitivity (beta) to Bitcoin’s price. Crucially, MicroStrategy’s corporate structure let it avoid forced liquidations: unlike an individual using margin, the company could hold through Bitcoin downturns without facing margin calls. CEO Michael Saylor tapped cheap financing (low-interest bonds, etc.) to load up on BTC, something most retail investors couldn’t do at scale. The market recognized this “financial engineering” advantage – investors were willing to pay a premium for Saylor’s ability to raise capital and maintain a levered Bitcoin position for the long run. In essence, MSTR offered safe leverage: enhanced upside of Bitcoin with reduced risk of involuntary liquidation, all packaged in a public stock.

• Speculative Reflexivity and the Flywheel Effect: Once the strategy gained momentum, a self-reinforcing flywheel (or what Saylor calls a “crypto reactor”) took hold. As Bitcoin’s price rose, MSTR stock rose even more, which then enabled the company to sell more stock at high prices to buy additional Bitcoin, which further increased the company’s NAV and credibility as a Bitcoin proxy. This reflexive loop can feed on itself during bull markets. Investors see the stock climbing and anticipate even more future BTC purchases, which justifies keeping the premium alive. The volatility and buzz around MSTR also attracted short-term traders and momentum speculators – adding to demand for the stock beyond purely fundamental holders. MicroStrategy’s management leaned into this by introducing metrics like “BTC yield” (Bitcoin per share growth) as a key performance indicator, emphasizing to investors that every new capital raise is increasing the BTC backing each share. In other words, the company successfully sold the narrative that its higher stock price was productive, fueling further asset accumulation. This speculative dynamic – where investor optimism itself becomes a tool for value creation – is a hallmark of what financier George Soros termed reflexivity. So long as enough investors believe in the upside and keep buying, the strategy can “run for a long, long time” in Saylor’s words.

Fundamental Valuation Models for the Premium:Traditional valuation would suggest a company’s stock should trade near the net asset value (NAV) of its Bitcoin plus any operating business value. So how can one justify a 100%+ NAV premium on fundamentals? A few frameworks help explain it:

• Embedded Growth/Terminal Value of Bitcoin Holdings: One approach is to model what the eventual Bitcoin holdings per share might be, assuming the company continues raising capital at favorable terms. For example, analysts can project a “terminal” number of BTC the company might accumulate and a future Bitcoin price, then discount that back. A positive premium today indicates the market is effectively valuing not just the current １₁₁ BTC/share, but perhaps something like ２₁₁ BTC/share at a higher future BTC price, minus some discount. In essence, the premium acts like a market-implied growth factor for the balance sheet. Just as a high price-to-book ratio for a financial company can imply expected growth in book value, here a high price-to-BTC ratio implies expected growth in BTC held. Investors are paying up now for the company to grow its Bitcoin stash with accretive equity issuances. If one were to formalize this, you could equate the stock’s price to: Current NAV + Present Value(Expected Future BTC Acquisitions). The latter term can be sizable if you assume the cycle of raising and buying continues under bullish conditions.

• Option Pricing Analogy: Given MicroStrategy’s levered nature and volatile dynamics, some view its equity as a call option on Bitcoin. The premium could be interpreted through an option valuation lens. The underlying asset is the company’s BTC holdings, which themselves grow when the company raises funds. The volatility of MSTR (often higher than Bitcoin’s own volatility) and the convexity introduced by periodic equity/debt issuance mean that small changes in BTC price can have outsized effects on equity value – similar to how an in-the-money call option reacts to the underlying. Additionally, by issuing convertibles and preferred shares (with conversion features), MicroStrategy effectively sells option value to the market, which lowers its cost of capital. The complex capital structure (e.g. convertible bonds, STRK preferreds) provides the company extra financing to buy BTC, while giving investors optionality. This structured finance angle can support the premium: arbitrageurs and sophisticated investors trade these instruments and MSTR common stock, keeping demand for the stock buoyant as part of multi-legged strategies. Overall, treating MSTR’s equity as a leveraged derivative of Bitcoin – with an embedded growth engine – helps rationalize why its beta > 1 and why investors might hold it instead of or in addition to Bitcoin.

• Closed-End Fund and ETF Comparables: There is also precedent for traded asset vehicles to deviate from NAV. For instance, the Grayscale Bitcoin Trust (GBTC) historically traded at a significant premium during bull markets. In 1929, many closed-end funds (investment trusts) traded at 50%+ premia as they held stocks or even other trusts. These premia often come down to supply and demand imbalances and investor sentiment. MicroStrategy’s stock essentially behaved like a closed-end Bitcoin fund with an active fanbase. When demand for exposure (or for the idea of being in the “first Bitcoin company”) outstrips the readily available supply of shares, the price can overshoot fundamentals. Unlike an open-end fund, there’s no mechanism for instant arbitrage to NAV; shorting MSTR is possible, but as skeptics warn, “the market can stay irrational longer than you can stay solvent.” Thus, a valuation model could incorporate a sentiment-driven premium as a variable – not purely justified by cash flows, but by investors’ willingness to pay extra for the package (management, liquidity, narrative, etc.). Some have dubbed MicroStrategy’s approach an “infinite money glitch” because, as long as the premium persists, the company can issue overvalued shares to buy undervalued Bitcoin, effectively arbitraging the market’s exuberance. This self-fulfilling feedback loop is a unique situation that traditional DCF models don’t capture, but it can be analyzed through game-theoretic or reflexivity models (where investors’ belief in continued expansion becomes a fundamental input to value).

Can This Work for Other Assets?The question implies maybe doing this with other assets (or even stacking one “MicroStrategy” on top of another) could be lucrative. In theory, yes – any time a company can cultivate a story and investor appetite that lifts its stock above intrinsic asset value, it has currency (its stock) to buy more assets cheaply. We have seen parallels: in the dot-com era, companies added “.com” to their name and saw shares skyrocket beyond any fundamental value, creating a stock currency to acquire real businesses. In 2021, some tiny firms pivoted to crypto or blockchain and saw stock prices surge irrationally. MicroStrategy’s innovation was realizing this could be done deliberately with Bitcoin on the balance sheet, turning a stodgy software company into a high-flying Bitcoin holding company. Now others are indeed trying to copy this “Bitcoin treasury” strategy: for example, new entities like Nakamoto Holdings raised hundreds of millions to create a public Bitcoin-holding company, aiming to replicate MicroStrategy’s premium-driven success. It remains to be seen if a second-layer strategy (a company owning MicroStrategy stock itself) would attract a further premium – such a recursive scheme starts to resemble the 1929 pyramided trusts and could quickly become too obviously speculative. Markets eventually arbitrate away extreme inefficiencies, but in exuberant times, layering corporate wrappers on assets can indeed produce temporary alchemy.

Explaining It with Fundamentals:At first glance, paying $2 for $1 of assets seems irrational – a classic bubble indicator. However, the above factors show that there are fundamental (or at least structural) reasons supporting a premium, even if that premium is fragile. In fundamental terms, investors in MicroStrategy are valuing services and future opportunities beyond the Bitcoin itself:

• Access and security (a proxy investment vehicle)

• Active management and leverage (Saylor’s strategy and financing acumen)

• Growth in holdings (effectively treating Bitcoin accumulation as the “business” growth)

• Optionality (both in capital structure and in upside to BTC)

• Scarcity and momentum (few alternatives, plus FOMO/speculative demand)

One can incorporate these into a valuation by adjusting discount rates (to account for higher risk/volatility), adding an execution premium for management’s skill, and modeling scenario outcomes where Bitcoin’s value skyrockets and the company capitalizes on it. In a sense, MicroStrategy’s stock valuation is built on a compound bet: a bet on Bitcoin’s long-term appreciation and a bet that the company will keep cleverly leveraging itself to accumulate even more Bitcoin per share.

Conclusion:The MicroStrategy case may appear to defy traditional finance laws, but it highlights how perception and structure can create real market value (at least for a time). The “treasury strategy” works in a hot market because it aligns with investor desires (easy crypto exposure and amplified returns) and exploits market inefficiencies (selling $1 for $1.66 by packaging it differently). Fundamentally, the premium can be explained by expected growth, special access, and leveraged upside, though skeptics warn it’s unsustainable and largely driven by speculation. Whether transmuting real-world assets into stock will always be lucrative depends on maintaining that delicate investor belief. As long as enough market participants are willing to pay above intrinsic value for the promise of even greater future gains, the strategy can continue – a modern manifestation of financial alchemy riding on the wings of crypto enthusiasm.

Footnotes

1. This tongue-in-cheek quote reflects the idea that a corporation can act like a fund or ETF – holding assets and issuing stock – which is not new, but crypto-era examples have shown just how extreme the valuation disconnect can get. ↩

2. In practice, regulatory rules, takeover logistics, and market skepticism might limit such recursive strategies. Short sellers and arb traders would likely pounce on a clear second-layer “company owning a company owning Bitcoin” scheme, collapsing the premium. Nonetheless, variations of the theme are being attempted in the market, as noted. ↩