Insights into MicroStrategy's Bitcoin 'Earnings'

The release of MicroStrategy's earnings on May 1 sparked a flurry of media requests for analysis. As I prepared to discuss the topic, I found myself suppressing the instinct to dismiss the company's approach. MicroStrategy, now rebranded as 'Strategy,' has pioneered the 'bitcoin treasury' model, which has been adopted by numerous other companies, including Metaplanet. The company plans to raise $84 billion through a combination of equity and fixed-income instruments. Three key questions arise from this development: Firstly, the concept of 'earnings' and 'price targets' in the context of MicroStrategy's bitcoin holdings is misleading, as it primarily reflects the price of bitcoin and financing costs. Secondly, the term 'Strategy' requires clarification, as it has become synonymous with the company's new identity. Thirdly, the lack of a backup plan or 'Plan B' raises concerns about the potential impact on the bitcoin market if the company's strategy fails. Despite these reservations, it is undeniable that MicroStrategy's capital raises have been impressive, with the company's stock price increasing by 36% this year, outpacing bitcoin's growth. The company has also effectively leveraged stock price volatility to its advantage, using it to issue attractive convertible bonds, generate listed options volume, and implement corporate 'yield' strategies. MicroStrategy has created a movement, establishing a new category in the market and inspiring the launch of levered ETFs and other investment products. However, this trend is currently limited to bitcoin, with the US market exhibiting a bias towards the cryptocurrency. The dominance of bitcoin in the conversation, accounting for approximately two-thirds of the total cryptocurrency market, raises questions about the lack of diversity in the market. The growing number of bitcoin exposure options, including leverage, yield, and optionality, is taking attention away from education about other blockchain assets and their potential benefits. As the market continues to evolve, it is essential to consider the broader digital asset class and provide investors with opportunities to explore and implement more diverse investment strategies.