MicroStrategy has turn out to be one of the polarizing firms in public markets. As soon as a standard enterprise intelligence agency, it has reworked into the world’s largest publicly traded Bitcoin proxy, holding over one million BTC on its stability sheet and constantly elevating capital to purchase extra. Supporters reward it as a visionary “Bitcoin ETF with leverage,” whereas critics argue it’s an irrationally overvalued car whose market capitalization frequently trades far above the truthful worth of its underlying property. The persistent premium — the hole between MicroStrategy’s fairness worth and the market worth of its Bitcoin holdings — has puzzled analysts, defied conventional valuation logic, and raised the query: why does this unfold exist, and why does it not shut via arbitrage? A latest tutorial paper, Valuing MicroStrategy, presents a structural mannequin that explains this phenomenon and sheds mild on how the agency’s distinctive financing mechanics permit its inventory value to exceed the worth of its property.
The paper offers a rigorous lens into how speculative dynamics surrounding company Bitcoin publicity problem standard finance principle. The authors situate MicroStrategy’s fairness throughout the literature on limits to arbitrage, displaying that fairness markets can maintain persistent mispricings even when debt markets stay disciplined. By embedding these dynamics right into a structural valuation mannequin, they reveal how the interplay between company financing capability and speculative sentiment generates a brand new intangible asset: a “financing franchise.” This framework underscores the complexity of contemporary valuation, the place companies tethered to risky digital property like Bitcoin can commerce at ranges that systematically diverge from basic benchmarks, reshaping our understanding of company finance in hype‑pushed regimes.
In impact, the evaluation means that MicroStrategy’s fairness needn’t be intrinsically “overvalued,” despite the fact that its market capitalization trades at greater than a 50% premium relative to the mark‑to‑market worth of its Bitcoin holdings. As an alternative, the agency’s issued debt seems systematically overpriced, reflecting over‑optimistic pricing by collectors. As a result of these debt devices aren’t readily shortable, arbitrageurs can not implement convergence. Consequently, MicroStrategy successfully monetizes the mispricing by extracting rents from debt buyers, thereby financing its lengthy‑horizon Bitcoin accumulation technique via the optimism embedded in its personal credit score spreads.
Fundamental findings summarized:
The primary resounding discovering is the identification of a persistent wedge between the market capitalization of MicroStrategy’s fairness and the truthful worth of its Bitcoin holdings, a wedge that standard arbitrage arguments can not rationalize. The mannequin posits that debt markets stay disciplined—arbitrageurs implement near-fair pricing of credit score devices—but fairness markets are inclined to speculative amplification. This asymmetry underscores a profound restrict to arbitrage: whereas rational buyers can quick debt or demand increased yields, fairness overvaluation persists as a result of shorting constraints, coordination frictions, and the option-like payoff construction of fairness collectively forestall convergence. The implication is that fairness markets can maintain valuations that systematically exceed asset values, not as a result of irrationality per se, however as a result of the financing channel itself turns into an intangible asset.
The second vital contribution lies in formalizing the notion of a “financing franchise” as an endogenous asset class. Throughout hype states, the agency can problem debt at a premium to basic worth, successfully transferring wealth from new collectors to incumbent shareholders. This mechanism generates a constructive suggestions loop: the extra overvalued the fairness, the larger the agency’s capability to extract rents from debt issuance, which in flip justifies increased fairness valuations. The authors’ structural mannequin captures this recursive dynamic and demonstrates its empirical consistency with MicroStrategy’s noticed market information. Past the case examine, the framework generalizes to any company entity whose valuation is tethered to risky, sentiment-driven property, thereby providing a rigorous lens via which to research the complexity of contemporary monetary markets the place speculative financing equilibria destabilize conventional valuation anchors.
Authors: Sandro C. Andrade, Brian Coomes, and Diogo Duarte
Title: Valuing MicroStrategy
Hyperlink: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5434457
Summary:
Bitcoin treasury shares current a novel state of affairs through which a agency’s property and fairness are traded independently. Surprisingly, the market worth of fairness can at occasions be considerably bigger than the market worth of property. We construct a steady–time structural credit score mannequin to copy this sample, assuming the agency is ready to problem new debt at a premium to truthful worth throughout a “hype state”, thereby violating Modigliani-Miller situations. This violation creates a “financing franchise”‘ owned by shareholders that may be precious sufficient to push the market worth of fairness above the market worth of the property. Our mannequin is per information displaying that limits to arbitrage bind for MicroStrategy’s debt however not for its fairness.
As all the time, we current a number of fascinating figures and tables:
Notable quotations from the educational analysis paper:
“MicroStrategy’s enterprise mannequin presents an uncommon state of affairs in company finance for 2 causes. First, not like common companies, the market worth of the agency’s property is observable: the amount of BTC held multiplied by BTC’s value. Second, in blatant violation of Modigliani-Miller propositions, MicroStrategy’s fairness market capitalization will be considerably increased than the market worth of its property. For instance, on the finish of 2025Q2, the market worth of BTC holdings was $64.4 billion and the agency had over $10 billion of excellent debt, whereas its fairness market capitalization was $110.5 billion.1 This 50+ billion hole can be a contender for the most important mispricing throughout a pair of securities ever documented.Determine 1 illustrates the (obvious) overvaluation of MicroStrategy’s fairness relative to Bitcoin. Panel (a) reveals MicroStrategy’s BTC accumulation alongside its funding sources over time. Panel (b) reveals the equity-to-assets ratio (stable blue line), outlined because the (adjusted) market worth of fairness divided by the market worth of their BTC holdings, alongside the BTC value (dashed pink line) over the identical interval.2 The determine reveals that the ratio climbs persistently above 1 after 2023Q4, reaching 1.7 in 2025Q2.
Determine 3 reveals that the web financing price for MicroStrategy’s fairness is persistently damaging and really near minus a regular money-market price over the interval. In different phrases, MicroStrategy inventory was low-cost to quick throughout all through your entire interval, per Determine 2. Furthermore, Determine 3 reveals that the price of shorting MSTR’s inventory fluctuated little or no, once more per Determine 2.
[Authors] develop a continuous-time mannequin to worth MicroStrategy, the pioneering “Bitcoin treasury inventory”. We present how a Modigliani-Miller violation — the flexibility to promote overpriced bonds to spend money on pretty priced securities whereas the market in a hype state — creates an intangible asset whose worth could make the market worth of fairness exceed the market worth of the agency’s (tangible) property. In our mannequin, the agency is constantly promoting pretty priced fairness and overpriced debt to increase its stability sheet in favorable phrases to shareholders (previous and new). The mannequin helps clarify why MicroStrategy’s fairness capitalization was persistently increased than the worth of its BTC holdings from 2023Q4 to 2025Q2, a discrepancy that reached 70% and greater than $50 billion. In line with our assumptions, information on the price of shorting securities point out that, from 2023Q4 to 2025Q2, the boundaries to arbitrage are binding for MicroStrategy’s debt, however not for MicroStrategy’s fairness.”
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