MicroStrategy dilutes its shareholders to buy more bitcoin

MicroStrategy has disclosed the acquisition of a further 15,350 bitcoin (BTC) using $1.5 billion raised from dilutive share sales. In total, the company now owns 439,000 BTC acquired at an average cost of $61,725 apiece.

Unfortunately, the 10-figure purchase did little to pump the company’s share price. MSTR is up about 4% since Friday, tracking BTC’s gain over the same time period. However, with BTC currently trading near its all-time high above $106,000, many shareholders are becoming impatient with MicroStrategy’s downside volatility.

Unlike BTC, MSTR is nowhere close to its all-time high. Although the stock is one of the best-performing large-cap stocks this year, it’s one-fifth below its November 21 pre-market print of $548.20.

Around that time, Saylor also lost voting control over MicroStrategy. He’s now a minority voter and chairman, prohibited from serving as the company’s CEO due to a 2022 legal settlement.

Some shareholders are growing weary of Saylor’s strategy of selling shares “at the market (ATM)” — i.e. at prevailing market prices, with no discount — in order to acquire more BTC.

Saylor has announced $21 billion worth of ATM sales in his current round of financing, which is still underway.

These sales instantly dilute shareholders while simultaneously increasing the company’s BTC holdings — assuming all of the proceeds are used to acquire BTC, which has been the case in recent months.

Although Saylor’s ATM strategy is a confusing transfer of money from one pocket to another, many bulls believe in MicroStrategy’s promise of “accretive dilution.” Because MicroStrategy trades at a premium to its BTC holdings, the company is able to capture a percentage of this premium through dilutive share and debt offerings.

As a result, the company has historically accreted BTC on a dilution-adjusted, per-share basis.

Since the start of the year, MicroStrategy has added 72.4% more BTC per MSTR share, even after accounting for dilution of currently outstanding obligations.

At the time of its $548.20 all-time high, MicroStrategy’s premium to its so-called net asset value, or “NAV premium,” exceeded 3.4X. It has fallen ever since and is currently at 2.22X.

In other news, on late Friday evening, Saylor received NASDAQ committee approval to join its prestigious, eponymous Nasdaq-100 index. Its addition as a constituent grants it active and passive flows from indexation, including mutual funds and ETFs like QQQ.

On January 1, the company will also benefit from a FASB rule change that will allow it to report gains on unsold BTC.

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