Why MSTR is Worth More Than Its Bitcoins

TLDR: Strategy's future as a bitcoin bank will justify its future market value.

The biggest debate raging on Twitter/X is on the valuation of Strategy, the company that holds the most bitcoin. This is also the most fascinating story in corporate finance last year. Strategy’s stock eclipsed most of the S&P 500 with a 2024 return of more than 320%. But the question is: Is it worth its current $113+ billion valuation?

For much of 2024, Strategy’s stock has been highly correlated with bitcoin, often rising and falling in sync with the underlying asset. That correlation has decoupled somewhat in 2025, as Strategy’s bitcoin purchases have vastly increased in size following the Q3 2024 earnings call, where chairman Michael Saylor proposed a $42 billion capital raise for more bitcoin.

The current debate focuses (possibly to a fault) on Strategy’s current financial engineering. The company issues equity and debt to buy bitcoin. This dilutes shareholders. More novel is the company’s convertible debt strategy. Strategy issues convertible bonds to the fixed-income market with very low (sometimes zero) interest rates and a conversion option that activates if the stock price clears a threshold. The bond is essentially a call option, which lifts the returns for the bondholders if the stock continues to appreciate. This provides fixed-income investors bitcoin exposure, which they may not be able to acquire otherwise.

The big debate is whether Strategy’s market value is justified, given that it trades at a 2x premium to the net asset value of its bitcoin holdings (mNAV). Over the last two years, mNAV has fluctuated from 0.73 on Dec 31, 2022, during bitcoin’s bear market, to a peak of 3.83 on November 21, 2024. Critics of Strategy claim that this is another example of GBTC, which also traded first at a premium, but then later at a discount.

It is true that if you view Strategy simply as a vehicle for holding bitcoin, then the bears are correct. It should not trade at a premium to NAV, and the company is currently overvalued. However, Strategy is not just another vehicle for holding bitcoin. Its true market value derives from what it will do with that bitcoin. That value is not what Saylor is currently discussing, namely, providing financial engineering solutions to the fiat capital markets. That is Strategy's business today, but in the long term, the real opportunity for Strategy is to serve as the nation's first bitcoin bank.

A Lendor of Last Resort

As the world continues its march to a bitcoin standard, more institutions will hold the world's most secure digital asset. The real users of on-chain bitcoin will be institutions, not individuals. With high demand, transaction fees will rise and eclipse the budget for the median-income individual. Bitcoin will become a settlement layer between institutions, and as this happens, there will be benefits that will accrue to a single corporate entity that has more bitcoin than any other.

Ultimately, the largest corporate holder of bitcoin can serve as the economy's lender of last resort (LOLR). During times of financial distress, this large holder can serve as the only entity that can absorb losses when no one else can. This is not without precedent in US history. Warren Buffett served this role during the Great Financial Crisis; he was able to negotiate favorable terms with Goldman Sachs in their time of distress because he was the pool of patient capital. JP Morgan served in this role in the US during the Panic of 1907.

While capital markets are also effective pools of capital, there is a benefit to having a single entity that acts with conviction during times of distress. Of course, there will be other banks on a Bitcoin standard in the future. These banks will borrow and lend to companies and individuals. But those banks will themselves need a bank, an entity that has the most bitcoin that can serve as a lender of last resort if needed.

This LOLR function rests on sound microeconomics. As the capital controlled by an entity grows, its risk aversion per unit of capital decreases. As a simple example, the average American may be too risk-averse to accept a coin flip that pays $1 million on heads and loses $950,000 on tails, even though it has a positive expected value. But such a bet is no problem for Warren Buffett. For any fixed gamble, risk aversion decreases in wealth, and this “wealth effect” gives value to large holders of capital.

What about the Fed?

You might think that the Federal Reserve should play the role of the lender of last resort. That is certainly the marketing pitch of central banks today, and what they claim to be one of their core value propositions. Central banks control the money supply and therefore can print money as needed to support banks as part of the Fed's mandate for price stability.

However, if you look back at history, the Fed was not the first, but rather the second choice for a lender of last resort. The original LOLR was the large private banks in the US, most notably J.P. Morgan and the Suffolk Bank of Boston. It was the banking crisis of 1907, when John Pierpont Morgan coordinated a private syndicate of bankers to recapitalize the smaller US banks under distress. That inspired the idea of a central bank (to serve as a public version of J.P. Morgan).

So why can't the Fed play this role in the future? There are many reasons why private banks and companies should serve as the LOLR. For one, the Fed is unconstrained in its printing of dollars and is therefore more likely to abuse that power in its attempt to stabilize the US economy. Even though the Fed might be able to provide cheap capital during a time of financial distress, there is nothing that constrains the Fed from also providing that cheap capital at other points in time, which historically leads to bad outcomes (inflation and the business cycle).

Second, capitalism forces private banks to adhere to strict profit and loss decisions, and thereby their decisions to serve this rescue function during times of financial distress must make economic sense for them. It is less likely that a future bitcoin bank would lead to unintended consequences, the kind that often arises from government intervention. Third, a commercial bitcoin bank will have more direct contact with the marketplace, better access to talent, and an ability to write incentive contracts, which will all improve its efficiency in deploying bitcoin as needed. Ultimately, a large bitcoin bank is a free market solution to the problem of a systemic financial crisis, unmoored by the inefficiency of a government bureaucracy.

Who else could serve this function?

Strategy is accumulating bitcoin today faster than any other entity in the market. This could change, however, if a larger company (or even nation-states) starts to accumulate bitcoin. However, nation-states will serve their interests first, rather than serving as a bitcoin bank for the economy. A larger company could enter the race, but the entry price is steep, at least $55 billion. And no large cap has yet expressed an interest in buying that much bitcoin. That leaves the bitcoin miners.

It is possible that a miner could acquire bitcoin more cheaply than Strategy buys it on the open market, hold that bitcoin over the long term, and ultimately serve this LOLR function. However, just as gold miners of the past have not turned into banks, bitcoin miners will not transform into bitcoin banks. Rather, the more likely scenario is that a future bitcoin bank would acquire a miner to lower the acquisition cost of its bitcoin. This acquisition could make more sense for bitcoin rather than in the traditional gold market, since the domain knowledge required for bitcoin mining and bitcoin banking is closer than for gold mining and fiat banking.

The market may take its time to value Strategy as the future bitcoin bank, and its mNAV may shrink before it expands. The bottom line is that there are economies of scale that come from capital accumulation. Valuing Strategy only on its net asset value today is like valuing Tesla as a car company; Tesla's valuation only makes sense if you reframe it as a technology company. The same is true for Strategy. It is not an alternative to the Bitcoin ETFs. Rather, it could become the world's first bitcoin bank, and that will have high economic value.

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