Why $1 Of Bitcoin Held By A Public Company Is Worth More Than $1

Transcript

[Music] There's a fundamental question that is kind of like the first principles question that I think should be addressed headon on this topic which is why should $1 of Bitcoin held by a public company be worth more than $1? um because that's the dynamic that has existed and persisted with Micro Strategy uh for now coming up on the past about two and a half years, it's traded at a pretty healthy premium to to NAV. Um and so the big question is why? And actually, you know, when I first encountered Micro Strategy, um, back when they were starting to do

their convertible bond issuance, the first convertible bond issuance, I believe, was like in 2018, 2019, they started to buy Bitcoin, um, with debt um, and with cash on their balance sheet and then did the first convert issuance in I think 19 or 20. You know, I scratched my head a bit because like it was difficult. I I couldn't wrap my head around why an investor would pay a premium for a public company that uh held Bitcoin as opposed to just buying Bitcoin spot markets. And and then certainly when we had the ETFs approved in January 2014 in 2024, like there it felt like there was even less of a reason because you can just buy IBIT and pay NAV. Why would you pay a premium to NAV? Um, but as we've kind of dug into

these digital asset treasury plays or crypto treasury plays or whatever you want to, you know, refer to them as, um, I I think there's there's more of an explanation as to why uh these premiums may exist and certainly if you're a long-term holder, why you may do better holding a digital asset treasury company than underlying spot. I think a big part of that is this concept of Bitcoin per share. So the the the MMO of Micro Strategy or is simple. They would like to increase the units of Bitcoin held per fully diluted share of common

stock. That is the mission goal MO of this company. Um what this means in practice is um if you uh hold I'm making up numbers here. If there's like one unit of Bitcoin per share of common stock at the end of a year if you can increase that to say 1.2 units of Bitcoin per share of common stock you've there you've increased your uh NAV per share by 20%. So the ability to grow NAV per share is a reason why these things over a long-term time horizon could outperform spot. And here's the essence of it, which is um

at a in a very simplistic lens, when you trade at a premium to NAV, you can sell stock at a premium and use the proceeds to buy Bitcoin, increasing your units of Bitcoin per share of common stock. When your stock trades at a discount to NAV, you can do the inverse. You can sell Bitcoin and buy back your stock. So, so when you're above NAV, you sell your stock, you buy back Bitcoin. When you're below NAV, you sell Bitcoin, buy back stock. And both of those capital market maneuvers increase units of Bitcoin per share of common stock. And so what you're effectively doing here is shareholders are the beneficiaries of of

arbit effectively arbitrageing their own stock whether it trades at a premium to NAV or a discount to NAV. So this dynamic didn't exist with Grayscale because there was a principal agent problem and you know shareholders couldn't couldn't redeem when it was trading below NAV and Grayscale didn't want to offer redemptions because they wanted to collect management fees. So typical principal agent problem on these plays there's no principal agent problem because shareholders are fully aligned. Management wants to increase Bitcoin per share. Shareholders want to increase Bitcoin per share. Um and then on the ET on Bitcoin ETFs, you also don't have this dynamic because the authorized participants are capturing that arbitrage. So unless these these names

kind of trade very efficiently right around 1x MNAV, um uh I think there is an opportunity to hold on to them through the cycle and the best management teams and there are a bunch of things that you know you have to do to execute on what I just said. It's not it's not very simple. Um but you um I believe the best treasury plays will be able to outperform uh spot um crypto prices and and this isn't also to talk about capital markets access and converts and preferred and all the other instruments but at its core you know I think the the reason why I think these names are misunderstood just to like nail down the point is that um if you can increase units of soul

units of ETH units of Bitcoin per share of common stock through capital markets um actions um you have the ability to increase NAV per share and therefore incre uh outperform spa prices. Not not every one of these companies will do it but you know certainly the the best we believe some of the best performing ones um will be capable of doing it. [Music]