This is a $118 billion “Strategy” for insanity

Last week when I wrote about America’s new stablecoin legislation (bizarrely called the “GENIUS Act”), a number of readers wrote in asking me to clarify a comment that I made about the Bitcoin company ‘Strategy’, i.e. formerly MicroStrategy.

I explained in the article that I am pro-crypto and have been since the early 2010s; for me it’s about freedom.

Many banks have proven time and time again that they simply cannot and should not be trusted with their customers’ money.

Wells Fargo is the poster child for blatant theft and deceit. And Bank of America is currently the prime example of recklessly irresponsible decision-making; that institution has managed to rack up more than $100 BILLION of unrealized losses from bad investments they made with YOUR money.

Crypto eliminates all of this. You can store your savings (whether as a risk asset like Bitcoin, or via US dollar stablecoins) and transact without having to deal with a bank. And this is a massive benefit.

Then there’s Strategy– the company formerly known as MicroStrategy. By its own description, Strategy is “Bitcoin Treasury company”, which is to say that their primary business is to own Bitcoin.

And they own lots of Bitcoin– 580,955 to be exact, worth $61.5 billion at the current price. Yet Strategy’s enterprise value is $118+ billion, or nearly TWICE the value of its Bitcoin. And this is one of the strangest things I’ve ever seen in financial markets.

Yes, technically, Strategy also has a software business, because they barely mention it.

Just have a look at Strategy’s own Q1 update– a NINETY-TWO-page presentation that had precisely ONE slide (#26) devoted to its software business. Literally one slide. And there wasn’t even much detail– the slide was entitled “Software Highlights” and only showed top-level revenue.

In other words, the company’s own presentation spends about 1% of its time talking about the software business without bothering to mention whether or it it’s even profitable.

(It’s not profitable; if you read the footnotes and financial addenda, you’ll see that Strategy’s “cloud-based, AI-powered” software loses LOTS of money…)

The other 99% of the presentation talks about Bitcoin. So, Strategy makes no bones about it– they are a Bitcoin company. Full stop.

And if they’re not talking about Bitcoin, they’re talking about how much money they’re going to raise, to buy more Bitcoin.

Strategy’s current plan calls for a whopping $42 billion in new capital– a number they seem to have landed on not through hardcore financial analysis, but as a joke related to Hitchhiker’s Guide to the Galaxy in which ‘42’ is the answer to the ultimate question of life.

Half of this $42 billion will be raised by indebting the company more, and the other half by diluting existing shareholders.

Management’s ultimate goal is to increase the average number of ‘Bitcoin per share’ that the company holds. That’s not unreasonable. But for this to happen, there are a number of things that have to go right– from cybersecurity to crypto markets– nearly all of which are beyond their control.

They don’t seem to have given these risks much thought. They assume, for example, that the Bitcoin price will appreciate by 30% per year.

And there are a number of very attractive charts, several of which demonstrate how high Strategy’s stock price will go in various scenarios. They show graphs with lines that start from the bottom left and soar to the top right, and there seems to be no credible way in which investors could lose money.

Then they polish it all off with made-up metrics like “Bitcoin Yield”, “Bitcoin Multiple”, “BTC $ Income”, and my personal favorite, “Bitcoin Torque”.

Strategy ends up disclosing six full pages of definitions just to explain what the hell they mean with these new terms.

For example, they humbly admit that “BTC $ Income is not equivalent to ‘income’ in the traditional financial context.” In other words, it’s not income. But they’re calling it income anyway.

Honestly it reminds me of Adam Neumann making up his own financial metrics when he infamously published WeWork’s “Community Adjusted Earnings” several years ago.

Strategy concludes its Q1 update by asking shareholders to spread the word and “educate their peers” about Bitcoin and MicroStrategy securities, i.e. help us keep this bubble going by finding more people to overpay for our assets.

And that’s exactly what it is; again, based on its stock price, Strategy is worth $118+ billion. Yet its BTC holding are worth $61.5 billion. So, anyone who buys Strategy stock solely for the Bitcoin exposure is overpaying by 2x.

Buying Strategy stock is the equivalent of paying $210,000 for Bitcoin today. And if you are willing to pay $210,000 for Bitcoin today, please contact me right away and I will gladly sell you some of mine.

Strategy doesn’t hide from this insanity. In fact, they’re leaning into it. They even track this on their website under the metric “mNAV”, i.e. the multiple by which investors overpay for the company’s Bitcoin.

Their presentation actually tries to rationalize this phenomenon; they claim the 2x mNAV is justified because of their stock’s volatility (which attracts traders) or that their “brand recognition and scale drive superior investor interest.”

Some of their financial models even assume that this mNAV will INCREASE to 3x!

Maybe so. But the bottom line is that there’s most likely a lot more upside to own Bitcoin directly. And the hard truth is that if you can’t figure out how to own Bitcoin directly, you probably shouldn’t bother buying Bitcoin to begin with… let alone paying twice the price for it.

Source

Simon Black is an international investor, entrepreneur and permanent traveler. His daily letter is both educational and entertaining, and we suggest that those who want unbiased, actionable information about global opportunities sign up for Sovereign Man’s free, actionable newsletter at http://www.SovereignMan.com.

From Simon Black of SovereignMan.com

Source: https://www.schiffsovereign.com/trends/this-is-a-118-billion-strategy-for-insanity-152900/