Chart of the Week | Microstrategy mNAV

Good morning everyone and welcome to our “Chart of the Week” series!

Every Wednesday we provide you with the most informative Bitcoin charts, sent directly to your inbox.

This week we dive into Microstrategy vs Bitcoin to understand whether MSTR’s share is under or over performing Bitcoin. Let’s dive in!

Bitcoin Purchases Begin

In August of 2020, as the CEO of a struggling software company, Michael Saylor made the first Bitcoin purchase of what would become the largest corporate Bitcoin strategy of the world.

With the Bitcoin price having recently recovered to ~$11,000, Saylor started what would become Microstrategy’s infamous “Bitcoin Treasury” operation. The timing was impeccable, as Bitcoin proceeded to begin one of its infamous bull cycles in October of 2020, rising rapidly to $19k as of December 1^st . 

Over the coming years, Saylor would go on to build a Bitcoin position of over 100,000 Bitcoin by August ‘21, nearly $3 billion dollars’ worth of Bitcoin purchases and only continue to add to his position over time.

Saylor was utilizing creative financing, such as issuing convertible bonds from the traditional financial markets and at-the-money share offerings in order to finance this large accumulation. The share price responded positively with explosive correspoonding growth, notching a +100% gain in 2020, and at the peak in early 2021, over 8.5x from its pre-bitcoin accumulation price.

Microstrategy’s “mNAV”

Logically, given that MSTR was holding and acquiring so much Bitcoin, it would make sense that MSTR’s share price would track Bitcoin. However, because MSTR was becoming a leveraged bet on Bitcoin, it started developing a premium compared to its underlying net asset value.

This premium (also known as “multiple to NAV” or “mNAV”) is calculated as:

(NAV - Market Cap / NAV) * 100

We analyzed this “mNAV” over various time periods to assess how Bitcoin has performed relative to MSTR.

Initial mNAV Peak

Based on the above mNAV of ~6 (see green circle), investors were initially valuing the company at over 6 times it’s underlying bitcoin position.

Similar to a Price to Earnings (“PE”) multiple, this mNAV represented a substantial premium that investors were willing to pay in order to obtain this leveraged BTC exposure.

Generally speaking, investors are usually only willing to pay a premium when they are optimistic on the future direction of the share price. In this case, that optimism was for not just Bitcoin, but also Michael Saylor’s ability to successfully deploy his new Bitcoin treasury strategy.

The Decline in mNAV

However, just as a premium expansion can do wonders for a share price on the way up, it can also be quite painful as that premium contracts, and this is exactly what would happen after the initial peak.

Over the course of 2021, this mNAV started to contract (green arrow below). Even as Bitcoin showed significant strength during early-mid 2021 (orange), the MSTR share price actually declined (blue).

mNAV Fluctuates around 1.0

As of May 2022, even despite an increase in bitcoin’s price up to $58,000 (a 27% gain from the time of the mNAV peak), MSTR was actually down to just $52 per share, a 60% decline!

In May 2022 (yellow circle below) MSTR’s mNAV dropped to a mere 0.5 after which the mNAV recovered back to 1.0 as Bitcoin suffered a 20% drawdown. MSTR’s share price rallied significantly, notching a more than 100% return, rising from $16 to $35 per share over the same period, where mNAV eventually topped out at 1.45 for the 2022 year.

That’s it from us this week - remember, stay humble and stack sats!