### MicroStrategy's Bitcoin Strategy: Risks and Rewards Explained

MicroStrategy's innovative strategy of leveraging Bitcoin positions it as a unique investment opportunity amid significant risks.

### MicroStrategy's Bitcoin Strategy: A Risky Investment with High Rewards
* 📈 MicroStrategy has seen an **astonishing year-to-date performance of over 500%**, significantly outperforming traditional stock market returns of **10-15%**.
* 💰 The company's stock has risen almost **2600% over the past five years**, largely due to its strategic pivot towards **Bitcoin investment** led by CEO **Michael Saylor**.
* 💵 Saylor's approach involves borrowing money through convertible bonds to purchase Bitcoin, allowing MicroStrategy to **accumulate over 300,000 Bitcoins** and leverage their value for **stock price increases**.
* 📊 However, this strategy raises concerns about potential risks, including the possibility of being perceived as a **Ponzi scheme** and the volatility associated with **Bitcoin's fluctuating price**.
* ⚖ MicroStrategy's stock is currently trading at a premium to its net asset value, with investors paying **$2 to $3 for every $1 worth of Bitcoin**, which could lead to **significant losses if Bitcoin's price drops**.
* 🔄 On the upside, upcoming changes in accounting standards could allow MicroStrategy to **reflect the current value of its Bitcoin holdings**, potentially attracting **more investors**.
* 🏦 Additionally, being included in major stock indices could provide a **steady influx of capital**, further supporting its Bitcoin acquisition strategy.
* 🤔 Ultimately, investing in MicroStrategy is a **leveraged bet on Bitcoin**, and while it may offer **diversification**, it carries **risks that require careful consideration and alignment with individual investment goals**.

Can you please explain it to me from the beginning what's Bitcoin? Sure, so if you haven't heard of MicroStrategy, you need to hear this story. MicroStrategy, MicroStrategy, MicroStrategy. The MicroStrategies, MicroStrategy, MicroStrategy has outperformed every single stock this year. The

year-to-date performance at the time of making this video is over 500%. Remember a good return for a stock in one year is 10 to 15% and this is 500%. And if you zoom out and you look at the 5-year average it's now up almost

2600%, which is comparable to the best performing stock in a long time now. Full disclosure, I'm making this video because I'm blown away by what's happening and also because about a month ago while I was traveling in Japan I was

looking to buy a watch and unfortunately by the time I made up my mind the watch was sold, so I decided to put that money into MicroStrategy. And on October 9th of this year I put $50,000 into the stock at a price of $195 a share and so

far it's made a lot of money, at least on paper, but that doesn't change the fact that there's a lot of speculation about this stock on whether it's going to go higher or that it's some kind of Ponzi scheme allegedly. So today I want to help

explain why this company has become so valuable, how I'm personally investing, and how one man has seemingly figured out the infinite money glitch. So let's get into it. Hi, my name is Andre J. Hope you're doing well. Come for the finance and stay for MicroStrategy. So at this

Point MicroStrategy is floating up and down between the 100 most valuable companies in the world and here's how it got there. MicroStrategy is the brainchild of Michael Saylor, a man who at first was very much against the idea of Bitcoin and just like everyone else

who takes their time and studies Bitcoin, he became convinced that Bitcoin is the best idea. Well, Bitcoin is a crypto asset. Okay, what's the second best? There is no second best. There is no second best crypto asset. Now, Michael Saylor didn't just start buying Bitcoin himself, he

went all in with this company as well. MicroStrategy, which originally was a business intelligence software company, and using the profits from his business, he strapped a rocket ship to it by transforming it into what people call a Bitcoin proxy or Bitcoin treasury company, a company whose value is very

closely tied to Bitcoin's performance. So here's what he actually did. His strategy starts with a really simple idea: borrow money to buy Bitcoin. And the way to do that is MicroStrategy issues something called convertible bonds. Think of these bonds as IOUs. So he says, 'Hey, investors, we

owe you money, but instead of paying you back with interest, we'll give you the option to turn your IOUs into shares of our company if the stock price goes up enough. But the bonds will not pay you any interest, it's 0%. Now, the question is

why would anyone want to take that deal? And the reason they would is because they're betting that MicroStrategy stock, which goes up when Bitcoin does, will be worth more than the bond's face value when it's time to convert. And here's where it gets really complicated.

recently Michael Saylor wanted to borrow $2.6 billion and Michael also mentioned something called the green shoe option of $400 million at a 55% conversion premium which sounds super complicated but here's what that means if you buy one of these bonds you can turn them

into MicroStrategy stock but only if the stock price goes up 55% more than it is right now so for easy math let's just say if MicroStrategy stock is at $100 per share you can convert your bond into shares when it hits $155 a share now if the stock does not

reach that price point in 5 years time you just get your money back but with no interest owed to you and that's a pretty good deal for some investors so from MicroStrategy's perspective imagine borrowing money at zero cost to buy an asset that can appreciate significantly

in 5 years time and with this borrowed money today MicroStrategy buys Bitcoin lots of it they've now accumulated over 300,000 Bitcoins and as Bitcoin's price goes up so does the company's stock price but not just one to one but

by a much higher percentage and that's because MicroStrategy amplifies its gains through leverage and in a bull market leverage comes at a premium valuation in the stock market kind of like how tech stocks trade at a higher multiple priced earnings ratio more so when everyone is excited about them so

think of it like this if MicroStrategy's Bitcoin is worth $1 billion the market might value the company at $3 billion investors are betting on Michael Saylor's strategy and the potential for even more growth in the future that premium is what allows MicroStrategy to issue shares at a higher

price than its intrinsic value, raising huge amounts of capital without significantly diluting shareholders. Instead, in fact, it's what's called a creative, which basically increases the Bitcoin yield for existing shareholders. Kind of like how when you buy a dividend stock over time, the dividend yield on

cost goes up, so does Bitcoin on cost per share. That capital is then reinvested back into, you guessed it, more Bitcoin. So the play-by-play is to borrow money by issuing shares, buy Bitcoin, Bitcoin goes up, MicroStrategy goes up, rinse and repeat. And this is the cycle that we're

watching play out in front of us. It's a feedback loop that some people have called the infinite money glitch, while other people have called it a potential Ponzi scheme. Now, this strategy is not free from risk and there are some potential downsides and some real

upsides. And here's what they are. So if Mr. Trump winning the election, there's been speculation about policies potentially favorable to Bitcoin, which is one of the many reasons Bitcoin is where it is today. And if you want to track trends like Bitcoin, let me

introduce you to today's sponsor, Mumu, a global trading app packed with powerful tools to help you trade and research smarter. Let's use MicroStrategy as an example to highlight three of Mumu's standout features. First, Mumu's 16-hour

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institutional investors are buying or selling a stock helping you refine your strategy and third-party investment themes feature simplifies the sector tracking head to the markets tab and with one click you can find Bitcoin related stocks and compare their performance and potentially discover opportunities and here's the exciting

part for my US audience M's offering an exclusive promo until November 30th using my link down below you can get an additional five free stocks on top of the regular 15 free stocks here's how it works deposit $100 for eight free stocks

deposit 1,000 for 12 more free stocks but also make sure to maintain your account balance for 60 days to get your free stocks for terms and conditions check out the link below thank you Mumu for sponsoring this segment of the video and now let's get back to it so let's

start with the criticism that this stock is allegedly a Ponzi scheme Now a Ponzi scheme promises to make money for investors from the investments of subsequent investors with no real income generating model and a Ponzi scheme is usually pretty secretive with no real

assets backing the promises and the reason why there's criticism is that the strategy depends on Bitcoin's price going up which comes from new money and that can feel like a promise of future returns based on new investments and using stock issuance and debt to buy Bitcoin can also be seen as financial

engineering but the argument against this is that MicroStrategy is a cash generating software business that's sort of found a loophole to generate shareholder value by buying a real financial asset which yes is volatile and speculative to some people but it's a real asset that's now recognized by

The biggest asset management company in the world, also, MicroStrategy does not depend on new investor money to pay profits or dividends to existing shareholders. Shareholders buy into MicroStrategy hoping for Bitcoin's price to go up, not for MicroStrategy to pay them from the pockets of new investor money.

So, I don't think it follows the same structure of a Ponzi scheme, but it is financial engineering in a way I don't think the world has ever seen before. But there's still some very real risks when buying the stock, and I think the first

one is the premium problem. One of the biggest criticisms of the stock is that MicroStrategy is trading at what's called a premium to the net asset value, or NAV. So, the stock right now is trading at a higher price than all of its Bitcoin holdings, and right now it's

estimated to be anywhere between 2 to 3x its NAV. That means investors are paying $2 to $3 for every $1 worth of Bitcoin that the company owns. So, people say, why would I want to buy MicroStrategy and pay triple for their Bitcoin when I can

just buy and own Bitcoin at a fair market price? But the reason that someone might want to do that is leveraged upside. Bitcoin goes up $1, MicroStrategy goes up $2 to $3. But this premium isn't guaranteed. It's based on market

sentiment, AKA how people feel. And if Bitcoin's price drops significantly, that could cause some huge problems. Here's an example: if Bitcoin drops 10% in value, which is totally possible, and the premium goes down, MicroStrategy stock could lose over 30% of its value because

what works on Leverage when the price goes up also works the other way around to the downside and that's what we just saw recently happen when Citron a research company said that they were shorting MicroStrategy it corrected really fast and that's the double-edged

sword it works when it works it amplifies gains but it also magnifies the losses risk number two is leverage amplifies volatility if bitcoin's price drops too far MicroStrategy could face pressure to sell its Bitcoin to meet its debt obligations and selling when the

market is going down not only locks in the losses but it could also trigger a downward spiral because if MicroStrategy needs to sell Bitcoin to pay its debt bitcoin's price goes down as well creating a potentially very vicious cycle it's kind of like how

we got to this price point really quickly but in reverse money made fast is lost even faster and risk number three is that buying MicroStrategy is not the same as owning Bitcoin when you buy MicroStrategy you're not just betting on bitcoin you're also betting

on Michael Saylor's strategy and the premium and the short sellers betting on your stock to go down so those are the risks but there's some really interesting upsides to MicroStrategy as well and I would say the biggest upside is changes to the FASB the Financial Accounting Standards

Board which happens after December 15th 2024 here's how it works right now if a company like MicroStrategy holds Bitcoin it's considered an intangible asset and the accounting method that they have to use to value it is called the cost method meaning when a company

buys Bitcoin, they have to write down how much it costs them, and if the value drops, they have to adjust it lower, and that's called impairment. But if Bitcoin's value goes up, they can't change their books to show how much more valuable their company has become until

they go to sell the asset. Now, the new accounting standard will change all of that. It's going to allow companies to show the current value of these intangible assets, which will change the way investors value companies that hold digital assets. And this accounting change could also lead to more companies

buying Bitcoin because they'll be able to benefit from these new accounting standards. It really is a big deal. Now, another huge upside that people may not be taking into consideration is the ability to make interest on their Bitcoin holdings. Imagine earning some kind of a yield or interest or dividend

just by holding a stock or a Bitcoin ETF. That's a really big deal. It's going to happen sometime in the future. The third potential huge upside is MicroStrategy being included in an index. It could be the S&P 500 Index or the NASDAQ, but this

is where all the 401(k) money gets dumped automatically every single month. All companies in an index are partially backstopped by a continuous flow of money that comes from just being in an index. That is huge. That's more money that could potentially be used by Micro

Strategy to issue bonds to buy more Bitcoin. And as the company moves up the index ladder, more money gets allocated to it. It's huge. Fourth upside is competition. Michael says, 'Look, if you think that you are smart enough to beat Apple, Microsoft, Google, that's cool. Your

company will make some money, but even those tech companies are probably having a hard time trying to beat what Nvidia is doing. But MicroStrategy is beating Nvidia, and he gave everyone the playbook of how he's doing it. There's nothing on Earth that stops another company with

some cash to do exactly what MicroStrategy has done. And if other companies start to use his strategy, even if it's on a smaller scale, that would amplify Bitcoin's price and their stock prices as well. So I give you the pros and cons, but here's how I'm personally thinking

about all of this and what I've done. I like to self-custody my Bitcoin. In fact, I have an entire 4-hour course that teaches you how to do that if you want to be 100% safe and put it on the

blockchain. The link is down below. But when I invested $50,000 into MicroStrategy, I thought about it as just another way to get exposure to Bitcoin while we're in a bull market. And when the stock reached $493 a share, I decided to take my

original investment off the table. I sold $50,000 worth, which wasn't quite the peak of the stock, but it was really close. And then when it dipped back to the low 400s, I bought back in. Now this is a very, very risky strategy, but I also

think we're just starting this run. And I do believe if Bitcoin continues to go up, the stock could be worth multiples of what I paid for it. But the journey to getting there is just going to be very, very bumpy. Now, does that mean people should invest in this stock and the

The answer is I don't know. Investing in MicroStrategy is not the same as investing in Bitcoin directly. It's a leveraged bet on Bitcoin with all the risks and potential rewards that come with it. And I tend to think that MicroStrategy could be a way to diversify

your holdings, but I still think owning Bitcoin directly or by buying a Bitcoin ETF like BlackRock's iShares Bitcoin Trust (IBIT) and cost averaging into that might be a less risky option, especially for people that are older that do not need three times the volatility of Bitcoin in their life.

Like any other investment, it's important to do your homework and understand the risks and make decisions that align with your goals. As for me, I'm watching the stock every single day and I'm just blown away. And I'm cautiously optimistic about it. Let me know in the comments

below what you think about all of this. And as always, don't forget to smash the like button, subscribe if you haven't already. I'd love to see you back here next week. I'll see you soon. Bye-bye.

MicroStrategy: The Infinite Money Glitch That's Breaking Wall Street

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I'm like Harry Potter - if he was a financial minimalist, did card tricks and worried about money. Biz inquiries: andrei@majikh.com


Andrei Jikh

MicroStrategy's Exceptional Stock Performance and Initial Investment

MicroStrategy's stock significantly outperformed other stocks, with a year-to-date return exceeding 500%.

Its 5-year average return is nearly 2600%.

The speaker invested $50,000 in MicroStrategy stock on October 9th at $195 per share.

There's speculation about the stock's future and potential Ponzi scheme allegations.

The video aims to explain MicroStrategy's high valuation and the speaker's investment strategy.

MicroStrategy's Transformation into a Bitcoin-Focused Company

MicroStrategy, initially a business intelligence software company, transitioned into a Bitcoin-focused company under Michael Saylor's leadership.

Saylor believed Bitcoin is the best crypto asset and invested heavily in it for the company.

MicroStrategy's value became closely tied to Bitcoin's performance.

Saylor's strategy involved borrowing money through convertible bonds to buy Bitcoin.

MicroStrategy accumulated over 300,000 Bitcoins, amplifying gains through leverage.

Risks and Criticisms of MicroStrategy's Strategy

Criticism centers on the potential for the strategy to be a Ponzi scheme, relying on rising Bitcoin prices and new investments.

MicroStrategy trades at a premium to its net asset value (NAV), meaning investors pay more than the Bitcoin holdings are worth.

Leverage amplifies both gains and losses; a 10% Bitcoin drop could cause a much larger stock price decline.

Leverage increases volatility and could force Bitcoin sales to meet debt obligations, potentially creating a downward spiral.

Investing in MicroStrategy is not the same as owning Bitcoin directly; it also involves betting on Saylor's strategy and market sentiment.

Potential Upsides and Future Outlook for MicroStrategy

Changes to accounting standards (FASB) after December 15th, 2024, will allow companies to reflect the current value of digital assets.

Future potential for interest or yield on Bitcoin holdings.

Inclusion in an index like the S&P 500 or NASDAQ could provide a continuous flow of investment.

Potential for increased Bitcoin adoption by other companies following MicroStrategy's model.

Personal Investment Strategy and Conclusion

The speaker's personal strategy involves self-custody of Bitcoin and using MicroStrategy as leveraged exposure to Bitcoin.

The speaker took profits at $493 per share and re-entered at lower prices.

Investing in MicroStrategy is riskier than direct Bitcoin investment but offers leveraged returns.

The speaker recommends thorough research and alignment with individual investment goals.