January 2025: MicroStrategy and the Bitcoin Bull Run
It’s been over a year since I gave an update. Switching from value investing and commodities to bitcoin was a painful process. As I couldn’t in good faith write about a variety of other investments when I saw bitcoin/Microstrategy (MSTR) as such a superior option, I was unsure in which direction to take the newsletter. My last newsletter, in November 2023, saw me adopt laser eyes on Twitter, meaning a laser-like focus on bitcoin. I was two-thirds bitcoin exposure at that time, through bitcoin and MSTR, and in January 2024 I allocated the rest of the portfolio to MSTR.
I saw MSTR as the trade of a lifetime in order to capitalise on the bitcoin cycle. I would hold bitcoin but use MSTR to trade the cycle in a tax-free account (ISA). The strategy was simple: accumulate MSTR shares in 2023 and then sell them during 2025 once bubble-like conditions emerged, before rebuying some shares a year or two later.
Performance
2024: +306%
2023: +22%
2022: +1%
2021: +10%
2020: +49%
2019: +51%
2024 in review for bitcoin and MSTR
The story of bitcoin in 2024 was one of three or four major catalysts.
As expected, the spot bitcoin ETFs launched and performed extremely well in terms of assets under management (AUM). The BlackRock ETF, IBIT, has $54bn in AUM as at 3 January, and all the bitcoin ETFs combined have AUM of $118bn[1]. This is astonishing in one year, making IBIT the most successful ETF launch in history by AUM.
The approval of the ETFs and their net buying propelled bitcoin to a new all-time-high before the halving, which was a first. And, in case anyone was in any doubt, the scheduled halving did in fact occur and cut the new supply issuance by half. The monetary inflation rate of Bitcoin is now less than that of gold, at around 0.8% per year until the next halving in 2028 when the supply issuance is halved again.
These events we predicted would result in much higher bitcoin prices. A catalyst we did not see coming was the Trump campaign coming on side so emphatically with bitcoin and crypto. It seemed to me, however, by summer, that it was more likely that Trump would win the election, and so I was expecting a Trump win to add fuel to the fire to take bitcoin to new all-time highs by the end of 2024.
In terms of Microstrategy (MSTR), where most of our exposure lies, I remained confident that there would be plenty of demand for the company’s shares and bonds even after the spot ETFs challenged them in terms of a bitcoin proxy. To begin with, after the ETF approvals, the stock dropped to around $45 a share, I suspect due to some investors switching exposure to the ETFs and market perception of reduced competitiveness.
However, MSTR is a stock and so it would have passive demand, and I was confident there would continue to be demand from active equity funds. Many countries did not have public access to the ETFs. Also, MSTR still had the main options market for bitcoin exposure, and there would be high demand for the company’s debt, especially convertible bonds, due to the rarity of bitcoin exposure in the fixed income market and the high volatility of the underlying bitcoin and MSTR stock (allowing fixed income investors access to bitcoin upside with protected downside). Further, MSTR is superior to the ETFs in several ways – it doesn’t charge a fee, it’s responsibly leveraged, and crucially it can increase bitcoin per share over time by issuing securities and buying bitcoin, and therefore it can outperform bitcoin and the ETFs.
What happened at MicroStrategy in 2024?
In 2024, it was looking promising for the company throughout the year in terms of its accretion of bitcoin per share. By 30 October, the company had increased its bitcoin per share by 17.8% year to date. This – what the company terms “bitcoin yield” – is done essentially by harvesting premiums from the securities it sells and converting them into bitcoin.
What happened from 30 October was completely mind bending. On the Q3 earnings call, they announced a massive $42bn capital plan to raise $21bn from equity and $21bn from fixed income over three years. They then proceeded to blow through most of the equity portion of the three-year capital plan over the next two months – on the back of the massive volume of the stock traded combined with the stock’s premium to NAV expanding. The company achieved a bitcoin yield of 48.0% just in Q4, and 74.3% for 2024.
On these numbers, the stock does not look expensive at all at a premium to NAV of just over 2.
Understanding MSTR’s bitcoin yield
The key to understanding Microstrategy is the “bitcoin yield” and how this justifies a premium to its bitcoin holdings.
MSTR was trading at a premium for almost all of the recent bear market as well as for its two bitcoin bull markets. This has made complete sense as, being a company, it could be leveraged and had several ways to increase the bitcoin per share over time. It had cashflow from its software business with which it could buy more bitcoin, and it could take on debt, increasing the bitcoin per share assuming bitcoin rises in price. With a premium justified, the shares then trade for a multiple of their underlying bitcoin per share. Therefore, selling shares and buying bitcoin is not dilutive but accretive to shareholders.
Simple illustrative example:
NAV: $500
NAV multiple: 2
Share count:10 shares
Share price: $100
Bitcoin per share: $50
The company issues 1 new share for $100 and buys $100 of bitcoin.
There are now 11 shares but the NAV has increased to $600.
$600 / 11 shares = $54.55 bitcoin per share
Selling shares and buying bitcoin is therefore a third major way the company increases bitcoin per share (the “yield”).
Another way is selling convertible debt. In 2025, we saw several large convertible debt offerings, including an offering in November of $3bn of bonds at 0% coupon and a 55% conversion premium. The fact there is a market for these bonds is due to the volatility of the stock. Although the bonds have no coupon, they increase in value as MSTR stock increases due to their option to convert to shares once the share price is 55% higher than at issuance, and the downside is protected by the promise of repayment of the principal if they are not converted. Collectively, these MSTR convertible bonds have been the best performing bonds in the world since their issuance, and have even outperformed bitcoin itself due to the outperformance of MSTR stock.
Selling bonds at 0% and a 55% conversion premium results in a greater increase in bitcoin per share than selling equity. The equity is already at a premium; the bonds sell for a premium on top of that (assuming they convert). If they do not convert, they act like standard corporate bonds at 0% yield. Since we expect bitcoin to rise (or we wouldn’t be in the stock!), borrowing at 0% to buy an appreciating asset is accretive and a no-brainer for shareholders.
Illustrative example of yield generated from convertible bonds (assuming conversion):
NAV: $500
NAV multiple: 2
Share count:10 shares
Share price: $100
Bitcoin per share: $50
Convert premium: 50%
The company issues a convertible bond eligible to convert to shares at a 50% premium.
It issues the bond for $150 and buys $150 of bitcoin. The bond converts to equity.
There are now 11 shares but the NAV has increased to $650.
$650 / 11 shares = $59.09 bitcoin per share
The company has generated a bitcoin yield for shareholders of $9.09 per share, or 18.2%.
Trading update
Trading-wise, over 2024 there were only two key moments as I traded very little. Right before the ETF approval in January, I was very confident of the event occurring, and so I liquidated my other stocks and bought MSTR with the remaining roughly one third of the portfolio that was not exposed to bitcoin. This was making me feel slightly queasy in late January when the stock almost touched my cost basis, but it was looking great by March and end of year.
In March, I sold a third of my shares on the big run-up, at around $150, thinking the quick move and valuation premium looked unsustainable; I then rebought the shares slightly cheaper. The trade could have been more accretive – but it was profitable.
In November 2024, on the big run-up post the election, I did not manage to take any profits. I was aware the parabolic move and expansion of the premium to the underlying bitcoin per share (to 3.5) looked like a good profit-taking opportunity. However, I decided the risk of missing getting back in was too great for too little reward in case bitcoin continued up quickly at the same time as the company rapidly increased bitcoin per share due to exploiting the premium. Over Q4, they increased bitcoin per share by 48% – that rate of growth plus a rise in bitcoin could quickly propel the shares higher.
Catalysts for bitcoin in 2025
Catalysts for bitcoin in 2025 include:
The time in the four-year halving cycle
Increased ETF buying, with a bitcoin allocation beginning to go into standard portfolios
Increased corporate adoption with the new fair-value accounting (FASB) rules for bitcoin
The Trump presidency, including a favourable regulatory outlook and the possible implantation of some form of US strategic bitcoin reserve (SBR).
Catalysts for MSTR
Catalysts for MSTR on top of this include:
MSTR’s adoption of FASB accounting for Q1 earnings
The expected issuance of large amounts of fixed income securities including convertible bonds in Q1
Increasing leverage and bitcoin per share
The early completion of the company’s $42bn capital raising plan and the possible announcement of an even bigger plan
The company’s possible inclusion in the S&P 500 in 2025 now that it could qualify under the new accounting rules from making a 12-month profit with only a small rise in the bitcoin price
Expected FOMO in a bitcoin bull run, expanding MSTR’s premium to NAV, which makes the bitcoin yield even more accretive: the “flywheel” effect
Trading strategy for 2025
My trading strategy going into 2025 is to wait for a balance of several factors to occur and then begin to take profits on the MSTR position, aiming to sell the majority of it over the year in a tax-free account, going to cash and rebuying some MSTR a year or two later when I expect the price to be lower than over the peaks of 2025. My thesis is that history repeats and that, however bullish events are for bitcoin this year, the price will run away and get overextended as it has in the past, and will then have a deep correction; MSTR will be more volatile than bitcoin in both directions.
The factors that influence when to sell include chiefly:
Bitcoin price
MSTR premium
Time in the cycle
Public sentiment
As for bitcoin price, I’m expecting a minimum of $180k, with an upper estimate of $400k.
The MSTR premium I’m expecting to go higher than 2, at least to 3 or 4 amid parabolic runs like we saw in November when it went to 3.5.
As for the time in the cycle, I’ll be more likely to sell the closer to the end of the year we are. If bitcoin is in the $150-200k range in March and the premium is above 3, I’ll be inclined to take some profits there, and look for similar opportunities over the summer and the autumn to sell down some more shares. I want to let some shares ride until autumn (October/November) in order to allow time for bitcoin to potentially run significantly higher.
Public sentiment is another indicator. We already got to bubble conditions of sentiment on MSTR among a relatively narrow group on Twitter in November/December. When this level of enthusiasm on bitcoin/MSTR/crypto spreads to the general public, it will be a sell signal, just as it turned out to be in November; we had new retail investors coming in for the first time near the top, heavily exposed with the 2x long MSTR ETFs and short-dated call options, and getting decimated on a stock up some 330% in 2024. Personal emotions will also be a sell signal – feelings of euphoria I have found historically are a reliable sell signal as at least a local top.
With the sell strategy being dependent on so many factors, it is impossible to create firm targets. Nevertheless, the idea is to sell some in Q1-Q2, some in Q3 and some in Q4, making the sell decisions as best I can by weighing up all the above factors.
It is of course quite possible that the historical view of the four-year cycle turns out to be wrong this time. If we do, for example, get a real US Strategic Bitcoin Reserve, with the US actively buying bitcoin in size, the price could run higher than we expect and for longer, through 2026. And then I may not be able to re-buy my MSTR for less than I sold it for. However, humans being humans, my expectation is that there is over-exuberance followed by a correction.
Final thoughts
I wish you all a very happy and prosperous 2025!
Written by Timothy Lamb
Twitter: @theretailbull
Disclosure:
The writer owns shares in the securities listed in the stock portfolio at the time of writing.
Disclaimer:
This article is for informational purposes only, does not offer investment advice and does not recommend the purchase or sale of any security or investment product. Please see the full disclaimer on the About page.
Excellent post brother. I don't how I came to subscribe to your substack but I saw that we follow each other on twitter.