The Disappearing Strategy Premium

As the price of Bitcoin falls to around $94,000, market sentiment fluctuates accordingly. Apart from Bitcoin itself, the hardest hit has been Strategy Inc. (formerly MicroStrategy), known for its “corporate version Bitcoin ETF.”

The company's stock price fell 4.2% on Friday, closing at $199.75, which has halved from six months ago's peak. More importantly, the relationship between its market value and the value of the Bitcoin it holds is changing.

According to the latest disclosure, as of November 10, the company holds 641,692 Bitcoins, valued at approximately $61 billion at current prices. However, Strategy's market capitalization has now fallen below $60 billion, not only significantly lower than last November's peak of $80 billion but also a notable shrink from $70 billion in July of this year.

This change seems to indicate that the market is reassessing the investment value of this “Bitcoin concept stock” with a new perspective.

Investment bank Monness, Crespi, Hardt has recently upgraded the rating of Strategy stock from “Sell” to “Neutral”, citing that its premium relative to Bitcoin holdings has narrowed and downward pressure has weakened. Research institutions point out that the premium of Strategy's market value relative to its Bitcoin holdings has significantly decreased.

Why Did the Premium 'Disappear'?

The valuation of Strategy has long been higher than the holding value of Bitcoin, not because the company itself has a profitability advantage, but because it once filled a structural gap in the financial market—during the era when Bitcoin ETF had not yet been approved, it was a tradable instrument for institutions to gain exposure to BTC.

The “substitute value” used to bring significant premiums, but as the global popularity of ETFs accelerates, the basis for premiums is being rapidly weakened.

ETFs provide a more direct, transparent, and lower-cost exposure to Bitcoin. For most investors, “corporate-wrapped Bitcoin” has begun to be less attractive than “pure Bitcoin,” and the market is no longer willing to pay a premium for “corporate-held Bitcoin.”

ByteTree's analysis clearly indicates that the valuation premium obtained by Strategy in the past mainly came from the absence of Bitcoin ETF. Now that this factor has disappeared, the valuation naturally returns to a level closer to the asset itself.

Investor concerns also stem from the ongoing expansion of Strategy's capital structure.

The complex financial structure of the strategy, rising financing costs, and continuously expanding capital structure have gradually become the main reasons for the contraction of premiums.

In recent years, the company has been relying on convertible bonds, preferred stocks, and ATM issuances to continuously raise funds to buy Bitcoin, and these financing methods are currently under pressure in the market environment. On November 7, the company issued 7.75 million euros-denominated preferred shares with an annual interest rate of 10%, which is significantly higher than the financing costs of previous years. As the prices of preferred shares, convertible bonds, and other structured instruments decline, the company's future financing capacity will be further constrained.

At the same time, cash flow pressure cannot be ignored. Data from Bloomberg estimates that Strategy needs to pay over $689 million annually to maintain its Bitcoin reserves (interest, operating costs, etc.). Against the backdrop of declining risk appetite and rising financing costs, this type of cash flow may increasingly need to be borne by common stock shareholders.

This situation has formed a typical negative feedback: Valuation decline → Financing ability decreases → Cash flow pressure increases → Market further adjusts valuation.

In a stage where the premium support is weaker, this cycle is more easily amplified by the market.

In a more aggressive view, investor Dr. Julian Hosp (@julianhosp) pointed out that according to the basic market cap he uses, the Strategy's basic mNAV has fallen to about 0.94, and the market valuation given to common stockholders is now lower than its corresponding Bitcoin value.

This data is not contradictory to the 1.2 times mNAV disclosed on the official website; the two have different definitions:

• basic mNAV: Common stock market value ÷ Bitcoin value, measures whether common stocks still enjoy a premium;
• diluted mNAV: Fully diluted market value ÷ Bitcoin value, measures the risk tolerance of the entire capital structure.

Therefore, the decline of the basic mNAV essentially represents the market repricing the risk premium for common stockholders.

The series of deductions proposed by Hosp based on this change, although somewhat pessimistic, points to the same issue – when the basic mNAV declines and the financing environment tightens, the financial engineering behind corporate balance sheets will become more difficult to maintain.

However, BitMEX Research believes that when measured from the perspective of enterprise value (EV) (market capitalization MCap + debt), even if the market capitalization approaches the Bitcoin holdings, the overall capital structure of Strategy (including convertible bonds and preferred stock) still results in its EV being higher than BTC NAV. This means that at the overall company level, it still maintains a premium and has not reached a true “discount” zone.

It is worth noting that regardless of how radical the views are, all parties are pointing towards the same trend: The past valuation structure of Strategy, which relied on emotions and narratives, is being dismantled, and the market is re-examining its risks in a manner more akin to traditional finance.

Not just Strategy, the entire DAT model has entered a new stage

As a typical representative of the enterprise crypto asset model (DAT), the valuation fluctuation of Strategy has always been regarded as an important barometer of the industry.

Recently, not only has Strategy experienced a deep correction, but the entire DAT sector has also shown significant differentiation, indicating that the market is re-evaluating the value of this business model.

In terms of specific performance, the DAT concept stocks show a polarized trend: Metaplanet and SharpLink have plummeted nearly 80%-90% from their year-to-date highs, while Galaxy Digital has risen against the trend, maintaining a year-to-date increase of 73.4%. This stark contrast reflects that the market is rigorously screening DAT companies, with multi-asset DAT companies holding high-risk tokens facing greater selling pressure.

CEX.IO director Yaroslav Patsira commented: “When the trading price of DAT stock is lower than the value of the cryptocurrency assets it holds, it means that the market is no longer paying for mere asset accumulation.”

Fakhul Miah, Managing Director of Gomining Institutional, also shares a similar view: “In this investment cycle, investors will be more selective, prioritizing Bitcoin reserve companies that operate transparently and have a structured framework.”

Despite facing challenges, DAT stocks, as high beta assets in the cryptocurrency space, still possess the characteristic of rebounding first in a bull market. However, the market's ultimate recognition of the DAT model will depend on whether these companies can go beyond merely holding coins and truly establish a commercially viable ecosystem with sustainable competitiveness and profitability. This not only represents an evolution of investment logic but is also a key step in the maturation of the DAT model from concept to reality.

Author: Seed.eth