MicroStrategy has turn into one of the polarizing firms in public markets. As soon as a traditional enterprise intelligence agency, it has reworked into the world’s largest publicly traded Bitcoin proxy, holding over 1,000,000 BTC on its steadiness 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 often trades far above the truthful worth of its underlying belongings. 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 by means of arbitrage? A current tutorial paper, Valuing MicroStrategy, provides a structural mannequin that explains this phenomenon and sheds gentle on how the agency’s distinctive financing mechanics enable its inventory worth to exceed the worth of its belongings.
The paper supplies a rigorous lens into how speculative dynamics surrounding company Bitcoin publicity problem standard finance principle. The authors situate MicroStrategy’s fairness inside the literature on limits to arbitrage, exhibiting 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 unstable digital belongings like Bitcoin can commerce at ranges that systematically diverge from elementary 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,” regardless 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 are usually not readily shortable, arbitrageurs can not implement convergence. Consequently, MicroStrategy successfully monetizes the mispricing by extracting rents from debt traders, thereby financing its lengthy‑horizon Bitcoin accumulation technique by means of 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 traders can brief debt or demand greater 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 resulting from 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 challenge debt at a premium to elementary worth, successfully transferring wealth from new collectors to incumbent shareholders. This mechanism generates a optimistic suggestions loop: the extra overvalued the fairness, the better the agency’s capability to extract rents from debt issuance, which in flip justifies greater fairness valuations. The authors’ structural mannequin captures this recursive dynamic and demonstrates its empirical consistency with MicroStrategy’s noticed market knowledge. Past the case research, the framework generalizes to any company entity whose valuation is tethered to unstable, sentiment-driven belongings, thereby providing a rigorous lens by means of which to investigate 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 during which a agency’s belongings and fairness are traded independently. Surprisingly, the market worth of fairness can at occasions be considerably bigger than the market worth of belongings. We construct a steady–time structural credit score mannequin to copy this sample, assuming the agency is ready to challenge 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 useful sufficient to push the market worth of fairness above the market worth of the belongings. Our mannequin is per knowledge exhibiting 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, in contrast to common companies, the market worth of the agency’s belongings is observable: the amount of BTC held multiplied by BTC’s worth. Second, in blatant violation of Modigliani-Miller propositions, MicroStrategy’s fairness market capitalization will be considerably greater than the market worth of its belongings. 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 worth (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 online 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 brief throughout all through all the 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 power 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) belongings. In our mannequin, the agency is constantly promoting pretty priced fairness and overpriced debt to increase its steadiness sheet in favorable phrases to shareholders (outdated and new). The mannequin helps clarify why MicroStrategy’s fairness capitalization was persistently greater than the worth of its BTC holdings from 2023Q4 to 2025Q2, a discrepancy that reached 70% and greater than $50 billion. According to our assumptions, knowledge on the price of shorting securities point out that, from 2023Q4 to 2025Q2, the bounds to arbitrage are binding for MicroStrategy’s debt, however not for MicroStrategy’s fairness.”
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