How Does MicroStrategy Use Bitcoin To Make Money?

Michael Saylor, Executive Chairman of MicroStrategy, is one of the greatest bitcoin communicators of all time. His presentations are legendary and lay out a clear case as to why bitcoin is a capital asset in a class all its own.

With MicroStrategy, Saylor has created a business out of securitizing bitcoin by using a set of financial tools together in an innovative way. The debate rages on about whether his model is sustainable, and whether and how investors should buy shares of $MSTR. And even more crucially, whether MicroStrategy’s rise is good for bitcoin.

There’s a lot to unpack, so let’s start with an overview of what MicroStrategy actually does.

How MicroStrategy works

MicroStrategy is a business intelligence firm founded in the 1990s. It survived the tech bubble of 2000 and continues to develop B2B analytics tools to this day.

In 2013, CEO Michael Saylor famously opined that bitcoin’s days were numbered. But in about 2020, he became a bitcoin believer and began adding it to MicroStrategy’s treasury. He believed that including bitcoin on the company’s balance sheet would give it an advantage over the long term, since bitcoin tends to appreciate on longer timescales and carries very low carrying costs and general business risk.

After the announcement of this new treasury strategy, investors began buying shares of $MSTR when, for various reasons, they wanted bitcoin price exposure but were unable or unwilling to buy it directly. Before spot bitcoin ETFs, $MSTR was the best way to gain price exposure in a traditional brokerage account or tax advantaged account. Even today, many large investment firms and brokerages cannot trade spot bitcoin ETFs or commodities like bitcoin, but can of course trade a public company’s stock.

As interest in MicroStrategy increased, its stock price appreciated, which allowed it to accumulate more bitcoin.

The company introduced a new concept they call “bitcoin yield,” which refers to the increase in bitcoin holdings per share over time. When you buy a share of $MSTR, there is some amount of bitcoin held in MicroStrategy’s treasury on that day, which represents the underlying net asset value, or NAV. As MicroStrategy accumulates more bitcoin over time, the amount of bitcoin per share increases. This is the bitcoin yield – the amount of future bitcoin per share.

Some investors believe that Saylor has discovered a treasury management model that takes advantage of flaws in the fiat system and combines them with the predictability of bitcoin, leading to significant upside potential for $MSTR.

The entire thesis is predicated on a few assumptions. First, that in a five year time frame, bitcoin will appreciate – about 25% per year on average. Second, that MicroStrategy will continue to be able to borrow money at lower annualized interest rates than the annualized appreciation of bitcoin.

This combination of assumptions, which have held true so far, allow MicroStrategy to “sell the volatility” of bitcoin’s short-term price to options traders. At the same time, its ability to borrow money at 0% annualized interest rates allow it to spend “free money” to accumulate more bitcoin.

Since many of these 0% convertible notes mature in 5 years, MicroStrategy will likely be able to utilize higher-priced bitcoin holdings as collateral for a rollover to new debt. If the bitcoin does not appreciate fast enough, the bond holders will still have the optionality to acquire $MSTR at a premium, supporting the price of the stock.

The Power and Peril of the MicroStrategy Model

At its core, the strategy leverages outdated capital markets where cheap debt and premium equity valuations still dominate. By converting inflating fiat capital into deflationary digital capital, MicroStrategy’s treasury operations look like the early stages of a speculative attack on the U.S. dollar.

A Singular Focus

MicroStrategy’s ability to sell stock volatility through instruments like convertible debt is only possible because of its crystal clear focus on bitcoin accumulation.

If the management team of MicroStrategy were less clear about its plans, investors would wonder if one day they might choose to liquidate some or all of the bitcoin. The ability of MicroStrategy to continue issuing shares without diluting current owners rests on continued bitcoin accumulation, which reliably raises NAV over time.

That is why Saylor continually appears in the media to communicate and reinforce his long term plan to accumulate bitcoin at any price and hold it forever.

The Genius and Risks of MicroStrategy’s Approach

The genius of MicroStrategy’s strategy lies in its ability to use the inefficiencies of legacy capital markets to gain leverage over fiat. In simple terms, it borrows cheap, inflating capital to acquire a scarce, appreciating asset. Of course, this strategy assumes that bitcoin’s long-term success is inevitable. If bitcoin were to fail, MicroStrategy’s entire thesis would collapse.

Yet, as bitcoin adoption grows, this likelihood diminishes. Increasing financialization of bitcoin, along with a growing user base that now reaches into the hundreds of millions, makes outright failure improbable in the extreme. For bitcoin to fail, hundreds of millions of people would need to wake up and decide that they all agree to abandon it.

Why MicroStrategy Matters

MicroStrategy’s aggressive approach isn’t just benefiting shareholders – it’s actively accelerating bitcoin’s adoption. By reducing bitcoin’s available supply and trailblazing a model for other companies, MicroStrategy is assisting bitcoin in being recognized as the apex predator of assets.

$MSTR is also catalyzing broader awareness of bitcoin’s unique properties as a store of value, pushing the conversation further into the mainstream. Several companies are pursuing a bitcoin treasury strategy.

Metaplanet is following a similar playbook, along with Semler Scientific. This week, Rumble, a free-speech focused video platform, announced that it is getting in the game and may allocate up to $20 million of its treasury to bitcoin.

We may yet see bitcoin gain a place on the corporate balance sheets of thousands of companies. If that were to happen, MicroStrategy will go down in history as a once-in-a-generation financial trailblazer.