After markets closed on December 23rd, MicroStrategy shocked the world by filing a proposal to increase its number of authorized Class A shares by a staggering 10 billion, equivalent to approximately 97% dilution for current shareholders (SEC Filing). Crazy, isn’t it? Indeed, but there’s definitely more to this than meets the eye.
First, MSTR will increase the number of its Class A shares, not Class B shares, of which 99.9% will remain in Michael Saylor’s hands, granting him de facto absolute control over MSTR operations regardless of how many Class A shares are issued.
Secondly, 10 billion new Class A shares won’t be issued at once. While it may seem obvious, those claiming MSTR’s share price will collapse due to this massive dilution are overlooking a fundamental law: the balance between demand and supply. As I’ve explained previously, Saylor is exploiting a regulatory arbitrage that makes MSTR the de-facto bottleneck between many institutions willing to gain exposure to Bitcoin but technically not allowed to do so. This creates an incredible imbalance between demand and supply where Saylor effectively controls the supply. As long as supply remains constrained compared to demand, there will always be a constant bid for MSTR shares, with short-term price fluctuations primarily driven by Bitcoin moves and trading firms attempting to arbitrage between MSTR and Bitcoin prices.
A third important point is Central Banks’ “indirect support” for all I’ve described. Consider this: not only do you have financial institutions – from insurance companies to pension funds to asset managers – already willing to shift part of their asset allocation to Bitcoin, but these are also constantly dealing with liquidity THEY MUST ALLOCATE as a result of Central Banks’ endless money printing (broadly speaking) and efforts to keep financial conditions loose to prevent the biggest financial assets bubble ever from imploding. Given this context, isn’t it obvious how MSTR is just another byproduct of reckless monetary policy and myopic regulation?
At this point, we can tackle the most important element of today’s article: What if MSTR becomes too big to fail?
Since 2008, no sufficiently large company or financial institution has been allowed to fail, but since this is an unwritten rule, there’s no set threshold that defines “too big to fail.” MSTR has just been included in the Nasdaq100, and it’s difficult to imagine them not being included in the S&P500 in the near future (perhaps replacing SMCI). This means more passive investors are joining the already large crowd of active investors who couldn’t buy MSTR shares fast enough. While an ~$80bn market cap might not yet qualify as too big to fail, what about $150bn? Or $200bn? Moreover, as MSTR grows larger, its underlying business becomes increasingly irrelevant (something nobody cares about anymore), making the stock an even better Bitcoin proxy. Does MSTR need Bitcoin’s price to rise to grow its market capitalization? Not necessarily. As long as demand for its shares overwhelms supply, Saylor can continue buying Bitcoin using MSTR share sales proceeds regardless of price. Even if MSTR’s premium against Bitcoin turns negative, this dynamic won’t change until current regulations are modified.
Once MSTR starts to be perceived as “too big to fail,” institutional investors will reassess their risk tolerance toward the company and inevitably feel more comfortable buying more shares simply due to their updated risk equations. Again, this creates more demand for MSTR shares.
What if we combine everything discussed so far with the great BlackRock master plan for Bitcoin I outlined months ago? You can easily see how there will be less and less Bitcoin supply available in the market while central banks’ money printing continues unabated. Should we blame Saylor for exploiting the inefficient market structure that was created? I doubt anyone in his position would behave differently.
To conclude, if regulators don’t intervene and allow MSTR to become “too big to fail,” the stock will reach escape velocity and grow increasingly larger, removing more and more Bitcoin from the system in a feedback loop that will inevitably become too difficult and too damaging to stop.
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