It’s begun.

There is euphoria across the board. Every podcast. Every newsletter. All of crypto twitter.

The conversations with other builders and telegram group chats. “Super cycle.” “Up only.” We are on the yellow bitcoin-orange brick road.

Bitcoin is setting all time highs every day (next stop $100,000). Ether is back above $3000. Solana above $200. Everything is up. Everything.

For the first time in a lonnng time, I have friends coming out of the woodwork asking about memecoins and wallets and how to get in. Euphoria.

The most important thing right now is to have exposure. Own some coins. Any coins. For the next few weeks I doubt it will matter which — just own some coins.

After that, it’s all about finding the fastest horse. And after that….taking profit. There’s so much to be bullish about. Stay disciplined, stay long, and enjoy the ride.

This week’s newsletter is a celebration. This is a big moment.

America ❤️ Crypto

In the coming weeks I’ll go deeper into my plan to get the most out of this bull market (shouldn’t be any surprises for long time readers — follow the momentum, ride the lightning, dynamic portfolio management).

For today though, I don’t want to rehash what you already know.

Instead, we’re going to celebrate with a deep dive into a company that saw the value in Bitcoin early and put their money where their mouth is. Big money — $10 billion big money. A company whose corporate strategy is, quite literally, to acquire as much bitcoin as possible as quickly as possible.

And it’s not just a bet that Bitcoin will continue appreciating over time. It’s a business to provide financial markets with unique securities to trade bitcoin, bitcoin volatility, and offer sophisticated financial engineering to grow bitcoin holdings over time.

It’s a genius strategy that doesn’t make sense through a traditional lens. It only works if you believe in Bitcoin.

The company is, of course, Microstrategy, $MSTR.

Market Vibes

Crypto Reads

Great podcast on Microstrategy: I’ve had this newsletter topic on my list for a while. It was this podcast that motivated me to actually write it. Great listen with loads more details.

Trump’s New Wall Street Watchdogs Are Coming—Likely With a Lot Less Bite: President-elect has said he would fire SEC Chair Gary Gensler on day one.

Congrats To Polymarket, But I Still Think They Were Mispriced: Polymarket (and prediction markets in general) had an amazing Election Night. They called states impressively early and accurately… and have successfully gotten prediction markets in front of the world. But [the author] also think their Trump shares were mispriced by about ten cents, and that Trump’s victory in the election doesn’t do much to vindicate their numbers.

What is MicroStrategy and why should you care?

MicroStrategy started as a traditional company. They still operate as a publicly traded software provided, selling business intelligence products.

That software business though is not the reason anyone would ever invest is MSTR today.

Microstrategy today is better described as a bitcoin accumulation machine. Everything it does is in the service of acquiring more bitcoin.

Beginning in August 2020, it shifted from dollars to bitcoin as it’s primary treasury reserve asset; its corporate strategy and accounting now focused exclusively on accumulating bitcoin.

Think about that for a second. The usual goal of a business is to generate as much cash as possible, and then reinvest it to compound into ever greater cash flows over time. Everything operates on the (correct) assumption that more USD is better!

Earnings per share. Revenue. Growth. Market cap. Everything is USD.

What if it wasn’t? What if you denominated your business is something else? Something like…bitcoin?

Look no further. MicroStrategy’s KPIs, balance sheet, strategy, and tactics all seem crazy until you look through the lens of acquiring as much bitcoin as possible and compounding it.

From that perspective, it all makes perfect sense.

The core assumption is the belief that Bitcoin is a superior store of value compared to fiat currencies like the U.S. dollar. If you believe that, then why wouldn't you seek to maximize the superior asset?

How much bitcoin are we talking about here?

As of their third-quarter 2024 earnings report, the company holds approximately 252,220 bitcoins, acquired at a total cost of $9.9 billion, or $39,266 per bitcoin.

As I’m writing, bitcoin just crossed $80k per coin (new all time high, again, lol). That puts MSTR’s bitcoin portfolio around $20.2 billion.

The company’s bitcoin has grown significantly throughout 2024:

Looking ahead, MicroStrategy also announced the “21/21 Plan” to raise $42 billion over the next three years, comprising $21 billion of equity offerings and $21 billion of fixed-income securities. You guessed it. They’re going to use that money to buy more bitcoin.

That’s alotta coins.

Even if this strategy is crazy, MSTR is a great way to bet on Bitcoin

The 21/21 Plan is worth a closer look — this is the core mechanism of the MSTR bitcoin accumulation machine.

The company issues and sells new shares of stock and debt securities in USD, and then uses the proceeds to buy bitcoin.

The asset side of their balance sheets holds a boatload of bitcoin, and the liability side holds a boatload of dollar denominated convertible debt.

There are two big effects here:

1. All that debt makes MSTR a leveraged bitcoin play. Every share of stock can control more bitcoin thanks to that extra buying power from the debt.

2. The debt is convertible — meaning that it can be converted to equity shares in the future, making it very attractive to asset allocators wanting exposure to bitcoin (or bitcoin’s volatility). It is an implicit call option on bitcoin (with leverage!)

You, the astute stock investor that you are, are probably thinking — all this issuance must be diluting the hell out of existing shareholders!

And you’d be right, in dollar terms.

But remember, MicroStrategy doesn’t operate in dollar terms.

Microstrategy is a BTC company, not a USD company.

The goal is more bitcoin per share

How do you measure the strategy’s success?

BTC Yield.

BTC Yield is like earnings per share growth, but instead of dollar earnings, it measures the growth in bitcoin held per share.

To calculate BTC Yield, you add up all the BTC on the books and divide by the company’s fully diluted shares. The BTC Yield is the growth rate of this metric from one period to the next.

If the company sells $42 billion of stock and buys bitcoin, earnings won’t go up. It’s a very dilutive transcation in dollar terms.

But in bitcoin terms? It’s actually accretive!

Remember, this metric is the number of bitcoin, not the dollar value. The goal is to own more coins, regardless of short term price changes. Again - this is kinda crazy, but it makes sense if you believe, as MSTR does, that bitcoin is the best long term store of value.

The company expects to generate an annualized BTC Yield of 6% to 10% between 2025 and 2027 from the 21/21 Plan. Again, that’s a lot of bitcoin.

So far, the bitcoin ETFs have not impacted MSTR’s attractiveness to investors

When the bitcoin ETF was approved last year, I thought it was over for MSTR’s stock. It seemed to me that their target investors would just buy the ETF instead.

I was wrong.

MSTR is up 431% over the past 12 months. Bitcoin is only up about 108%.

I failed to see a few unique advantages that MSTR can offer, particularly appealing to institutional buyers.

• Leveraged Exposure to Bitcoin in a spot equity. No futures, no margin, no derivatives required. Buy stock, get leveraged bitcoin.

• Bitcoin Accretive Dilution Strategy: The whole sell shares to buy bitcoin strategy is genius if you’re prioritizing long-term Bitcoin accumulation. It is compounding bitcoin.

• Strategic Vision and Alignment: Michael Saylor, founder and Executive Chairman of MicroStrategy, is a huge name in crypto. His media clips are legendary. Investors value leadership, and they trust Saylor when he speaks. If you want to invest hundreds of millions or more in bitcoin — there’s no better person to enlist than Saylor.

And lastly, I totally missed the appeal to the set of investors who want to trade bitcoin volatility.

MSTR gives these professional degenerates high volatility and loads of trading opportunities in an instrument that’s liquid, capital efficient, and regulator approved. There’s no good way for an institution to trade bitcoin vol. The instruments are not really available, especially in the US, and gaining that correlated exposure (or even a beta) is just tough to do. MicroStrategy’s stock and fixed income offerings give these firms the tools they need to put on these more sophisticated trades, with size.

An investment in Microstrategy is an investment in bitcoin. Full stop. It’s a leveraged bet that bitcoin will be worth more in the future. If you believe in that future, then MSTR will give you a correlated return to BTC’s price, with some extra vol on top from leverage, and with a compounding increase in the number of tokens per share that you own.

Not a bad deal, if you ask me.

Portfolio Update

I sold half my position in FLR and rotated into Drift Protocol at $1.21. Drift is going to get a full write-up in the near future (it’s a Solana based trading platform for crypto derivatives that uses an order book architecture — it’s very cool tech). I bought it in a rush because the price was starting to pump and I didn’t want to miss the move. Buy first, ask questions later.

I took profit on PNUT and rolled it into a bigger than usual bet on BONGO. BONGO is a cat-themed meme coin on Solana. Fingers crossed this will be the next POPCAT.

I plan to buy MSTR in my equities portfolio next week.