MSTR CEO on being shorted: Citron doesn't understand where the premium of MSTR over BTC comes from

Author: Li Xiaoyin, Wall Street News

MicroStrategy CEO responds to Short: the company is currently making $500 million a day, and expects the stock price to rise 60% annually over the next 20 years.

Last Thursday, in the US stock market, the well-known Short institution Citron Research posted on the social platform X that it intended to short ‘BTCHoldingsLarge Investors’ MicroStrategy (MSTR), causing MicroStrategy’s stock price to plummet, falling more than 21% from the daily high.

On Friday, MicroStrategy’s chairman, Michael Saylor, appeared on CNBC’s media program, responding that the company is still able to make money by leveraging ATM operations while profiting from volatile trading, as long as Bitcoin is still rising.

Wall Street News previously mentioned that ATM, which means the issuance/increase at the market price, refers to the listed companies gradually selling the newly issued shares or the shares they already own to the secondary trading market through designated brokers at the prevailing market price.

The premium of MSTR is mainly derived from the ATM mechanism.

A previous tweet showed that Citron believes that MicroStrategy’s stock has become an alternative investment to BTC, and its stock price has unreasonably appreciated compared to the BTC driving its value, with trading significantly overheated, so it has decided to short MicroStrategy.

In this interview, Michael Saylor said that short institutions believe that once the premium and capital disappear, the source of profits will also disappear. However, short sellers overlook an important profit point of MicroStrategy: the company invests in BTC through financing and leverage, and obtains high returns from it.

Saylor explained that the company relies on BTC as a ‘reactor’ to provide power, on the one hand, to profit from volatility trading, and on the other hand, to increase the position through debt financing, borrowing and investing in BTC through the ATM mechanism.

ATM mode can flexibly raise funds, avoiding the significant discount issuance often seen in traditional financing, which is particularly suitable for high-volatility stocks like MicroStrategy. At the same time, MicroStrategy’s high trading volume makes it possible for large-scale stock sales, creating an arbitrage opportunity with a market capitalization premium of 2.8 times the BTC holdings.

Saylor stated that through ATM operations, MicroStrategy transfers the volatility, risk, and performance of fixed income assets to common stock, allowing the company to achieve returns far higher than the cost of borrowing and the increase in BTC.

“If we invest the financing funds with an Interest Rate of 6% in BTC, when the BTC price pumps by 30%, what we actually get is an 80% price difference in BTC (a function of combined stock premium, conversion premium, and BTC premium).”

The company issued $3 billion in convertible bonds, and based on an 80% Bitcoin price differential, this $3 billion investment can bring $125 per share in return over 10 years.

This means that as long as the price of BTC remains pump, the company can continue to make a profit:

“Two weeks ago, we made a $4.6 billion ATM and traded at a 70% spread, which means we made $3 billion BTC in five days. About $12.5 per share. If calculated over 10 years, the returns will reach $33.6 billion, equivalent to $150 per share.”

When talking about the risks that BTC’s decline may bring, Saylor believes that investors who buy MicroStrategy’s stock have already accepted the risk of BTC’s potential decline by default—those who want a double return must bear corresponding risks.

Saylor further stated that the company currently earns $500 million a day and has become the “fastest and most profitable company to rise in the United States,” with the expectation that the price of BTC will rise by 29% annually over the next 20 years, and the company’s stock price will rise by 60% annually.

Since the beginning of this year, MicroStrategy’s stock price has soared by 516%, nearly four times the increase of BTC’s 132% during the same period. In comparison, AI leader NVIDIA has pumped up 195% since the beginning of this year.