The Bull case for Microstrategy

Summary

The speaker explores potential outcomes for MicroStrategy's (MSTR) Bitcoin strategy, speculating on its future value if Bitcoin reaches $1 million per coin. Using power law models and a 20% annual compound growth rate, they estimate MSTR's Bitcoin holdings could reach 250,000 by the next cycle, yielding significant returns. Additionally, they discuss the possibility of earning interest by lending out Bitcoin reserves, leading to enormous valuations for MSTR. The analysis concludes that both a US dollar premium and a Bitcoin premium on MSTR's holdings could be justified, making it an asymmetric investment bet.

Takeaways

• 🤔 The speaker explores potential future scenarios for MicroStrategy (MSTR) and Bitcoin.
• 📊 MSTR’s average cost for purchasing Bitcoin over the past four years is around $35,000, which is slightly below the power law trendline predicting $35K-$40K for Bitcoin.
• 💡 Using projections, MSTR’s future average Bitcoin purchase price could reach $150K-$200K per coin over the next four years, depending on various factors.
• 📈 The speaker estimates that by the next cycle, MSTR will have accumulated 250,000 Bitcoins.
• 💰 If Bitcoin reaches $1 million per coin, MSTR’s Bitcoin stack could be worth around $250 billion.
• 📉 The power law model suggests that Bitcoin may continue compounding annually at around 20% into the 2030s.
• 🏦 The concept of yielding interest from their Bitcoin stack is discussed, similar to how banks operate under fractional reserve systems.
• 💸 MSTR could potentially earn 8,750 Bitcoins annually in interest, worth about $8.75 billion, if Bitcoin is at $1 million and a 5% interest rate is applied.
• 🏆 MSTR’s dominant Bitcoin position would make it extremely difficult to value, and a premium would likely be applied to its Bitcoin stack.
• 🤯 The speaker concludes that MSTR represents an asymmetrical bet with significant upside potential due to the compounding value of Bitcoin and possible yield opportunities.

Q & A

What is the main topic of the video script?

The main topic of the video is an analysis of MicroStrategy's Bitcoin purchasing strategy and its potential future valuation, particularly under a scenario where Bitcoin reaches $1 million per coin.

What is the significance of the 'power law' in this analysis?

The 'power law' is used as a model to estimate the fair value of Bitcoin over time, based on MicroStrategy's past purchase averages. It suggests long-term growth trends and helps in predicting future purchase prices and valuations.

What is MicroStrategy's average Bitcoin purchase cost mentioned in the script?

According to the script, MicroStrategy's average Bitcoin purchase cost has been around $35,000 per coin over the past four years.

How many Bitcoins does the author predict MicroStrategy will hold before the next cycle?

The author predicts that MicroStrategy will have approximately 250,000 Bitcoins before the next Bitcoin cycle.

What is the projected value of MicroStrategy’s Bitcoin holdings if Bitcoin reaches $1 million per coin?

If Bitcoin reaches $1 million per coin, MicroStrategy’s Bitcoin holdings would be worth around $250 billion.

What does the author assume about Bitcoin's compound growth rate in the 2030s?

The author assumes that Bitcoin will compound at an annual growth rate of above 20% in the 2030s.

What is the author's prediction for MicroStrategy's annual Bitcoin interest earnings if it lends out its Bitcoin holdings?

The author predicts that MicroStrategy could earn approximately 8,750 Bitcoins in interest per year, which would be worth around $8.75 billion if Bitcoin is valued at $1 million per coin.

How does the author justify a potential 'Bitcoin premium' for MicroStrategy?

The author justifies a potential Bitcoin premium by suggesting that MicroStrategy could generate significant interest by lending out its Bitcoin holdings, making it a dominant player in the market with uncatchable value. This potential yield would add to the value of the company's Bitcoin stack.

What comparison does the author make between Bitcoin and traditional financial metrics like the S&P 500?

The author compares Bitcoin's compound growth to the S&P 500 index, suggesting that just as investors use the S&P 500's performance to estimate capital costs, people might start adopting a similar model to estimate Bitcoin's fair value and its decreasing compounding rate over time.

What is the 'low probability but high return' concept the author refers to?

The author refers to the idea that MicroStrategy's investment in Bitcoin is an asymmetrical bet, meaning there is a low probability of extreme outcomes (like Bitcoin reaching $1 million per coin), but if it happens, the returns could be enormous.