Author: Glenn Hodl
Compiled by: Azuma, Odaily Planet Daily
Editor's Note: The trend of the cryptocurrency market is still confusing, but Microstrategy (MSTR), which is strongly tied to Bitcoin, has recently hit a new all-time high in its stock price - the US stock market shows that on October 9, MSTR once approached the $200 mark, reaching a high of $198.35.
Recently, overseas KOL Glenn Hodl has given his own analysis on Microstrategy's strong performance. Glenn believes that even if the price of Bitcoin no longer grows, Microstrategy can use the difference in the valuation model between commodities and companies to create a "perpetual motion" that can sustainably drive up its own market value, which will ultimately make Microstrategy the world's largest company.
The following is the original content of Glenn.
Microstrategy's CEO Michael Saylor seems to have found an "perpetual motion" economic model.
I'm not sure if this mechanism can be stopped, but if it continues to operate, Microstrategy is likely to become the most valuable company in the world.
The reason is that the way to value a company is fundamentally different from the way to value a commodity like Bitcoin, which creates a paradox in the market's valuation of Microstrategy (MSTR) - commodities are always traded at their current price, while companies are traded at a discounted price of their future value.
Therefore, if you believe that Bitcoin will be worth more in the future, then the Bitcoin held by Microstrategy will and should also become more valuable.
This may create a "second-order effect", where Microstrategy can continuously capture this premium expectation, which not only enhances the appeal of its narrative, but also drives its market value to continue to rise.
Some readers may still not quite understand, here is a static and oversimplified version.
Now there is a company that has issued 10 shares and holds 10 bitcoins.
Assuming the current spot price of Bitcoin is $2, and the market expects it to rise to at least $4. According to the valuation model for companies (traded at a discounted price of their future value, assuming a discount rate of 50%), the company's stock price will be $3, a 50% premium over its net asset value.
The company's boss finds an opportunity here, so he issues 2 new shares at market price and uses the $6 to buy 3 more bitcoins from the market.
Now the company has issued a total of 12 shares and holds 13 bitcoins, the ratio of "Bitcoin holdings / Shares issued" has changed from 1:1 to 1.08:1.
The key point is that the company's market value is now $36, while its treasury value is $26, the premium has shrunk to 38% (conversely, the discount has expanded to 62%), but the market will still value the company at a 50% discount to its future value, which will drive the company's market value up to $39, corresponding to a stock price of $3.25.
After the premium is corrected, the company's boss can repeat the above process again, issuing 2 new shares at market price and using the $6.5 to buy 3.25 more bitcoins from the market.
Now the number of shares issued has reached 14, and the Bitcoin holdings have reached 16.25, the ratio of "Bitcoin holdings / Shares issued" has changed from 1.08:1 to 1.16:1.
Subsequently, as the market again corrects the premium by valuing the company at a 50% discount to its future value, the company's market value will be pushed up to $48.75, corresponding to a stock price slightly below $3.5.
So far, although the price of Bitcoin has not changed at all, and the premium has returned to 50%, the company's "Bitcoin holdings / Shares issued" ratio has grown by 16%, and the stock price has also grown by about 16%.
At this point, a monster has been born. The company can repeatedly go through the above process, using the difference in the market's valuation model for commodities and companies to create a perpetual motion, and the market will continuously raise its valuation of the company, both because the future value of Bitcoin will increase, and because the company's "Bitcoin holdings / Shares issued" ratio is constantly increasing.
Microstrategy is this monster, and it is poised to become the largest company by market value.
