Buy BTC or MSTR? Analyzing the Capital Flywheel of Strategy Companies

Original Compilation: AididiaoUJP, Foresight News

Over the past year, the market has consistently focused on one core question regarding MicroStrategy:

Will mNAV expand again?

mNAV refers to the ratio between the company’s market capitalization and the value of its Bitcoin holdings on the balance sheet. When the company’s market capitalization trades at a premium relative to its Bitcoin holdings, mNAV expands; when the premium narrows, mNAV contracts.

Last year, mNAV experienced significant expansion, reaching approximately four times the value of its Bitcoin holdings at one point. Since then, the premium has gradually retreated to a level close to one, meaning the market currently values the company roughly in line with the value of its Bitcoin holdings.

This compression has sparked ongoing debate. Some investors believe the previous premium was merely a short-term phenomenon driven by speculative sentiment; others argue that the premium will reappear as long as Bitcoin rises again.

However, this debate may be overlooking a more fundamental shift.

The current market state might not be a brief period of compression before the next expansion.

It may signal a profound transformation in how the company’s entire capital structure operates.

Current Debate: ATM Issuance vs. Bitcoin Accumulation

The current market discussion largely centers on interpreting the company’s equity ATM (At-The-Pasar) offering plan.

Critics argue that this move is diluting existing shareholder equity.

Supporters contend that as long as Bitcoin remains undervalued, issuing equity to purchase Bitcoin is a rational choice.

Both viewpoints have some merit.

Yet, both fail to perceive the deeper strategic logic.

The company is not simply issuing equity to buy Bitcoin.

It is constructing a layered capital structure capable of sustained expansion.

And the operational logic of this structure differs drastically across different mNAV ranges.

Operational Logic in Two Major mNAV Ranges

The strategic significance of equity issuance depends on whether the company is trading near a 1x mNAV or at a significant premium.

Range One: mNAV Compression Period (Near 1x)

When mNAV is near one, the efficiency of equity financing is relatively limited—the market values the company essentially at par with its Bitcoin holdings.

In this environment, equity dilution must be justified by direct Bitcoin accumulation.

The capital operation logic during this phase roughly follows:

• Equity ATM financing → Purchase Bitcoin
• Preferred stock issuance → Purchase Bitcoin

This is precisely the stage the company is in now.

From this perspective, the company’s equity issuance at this time is not arbitrary or speculative but is based on the judgment that Bitcoin’s long-term value is undervalued.

In this stage, even with a limited premium, issuing equity can still enhance the quality of the balance sheet by increasing Bitcoin holdings.

In other words, the company remains in a Bitcoin accumulation phase.

Range Two: mNAV Expansion Period (3-4x or Higher)

Once the equity premium expands significantly, the operational logic undergoes a qualitative change.

When mNAV is markedly above one, equity transforms into an extremely efficient financial instrument.

The optimal use of equity at this point may no longer be for direct Bitcoin purchases.

Instead, equity issuance becomes an efficient means to service debt obligations arising from other layers of the capital structure, particularly preferred securities.

In this stage, the capital operation logic might evolve into:

• Preferred security issuance → Purchase Bitcoin
• Equity ATM financing → Pay preferred stock dividends

This distinction is crucial.

When mNAV is high, issuing a relatively small amount of equity can raise sufficient capital to cover substantial cash payment obligations.

This makes equity an ideal tool for stabilizing the liability side of the balance sheet.

Strategic Value of the Preferred Stock Layer

One significant evolution in the company’s financial strategy is the introduction of preferred securities targeting yield-seeking investors.

These securities attract a completely different investor base than common stock.

Equity investors typically seek growth and Bitcoin exposure.

Preferred investors seek stable yield.

The preferred stock layer enables the company to tap into the vast global demand for yield-generating assets.

When these preferred securities are successfully issued, the raised funds can continue to be used to accumulate more Bitcoin.

But preferred securities come with an important constraint:

They create an ongoing dividend payment obligation.

As the scale of preferred stock expands, so does the dividend payment obligation.

This means the company must achieve a delicate balance between:

• Bitcoin holding growth
• Preferred dividend coverage
• Control over equity dilution

This is precisely where the strategic value of the equity ATM lies.

The Forward-Looking De-leveraging Function of ATM

Another perspective for understanding the company’s current equity issuance is: this is not a response to current balance sheet pressure.

Rather, it is laying the groundwork in advance for future balance sheet expansion.

If the scale of preferred stock continues to grow, the company’s dividend payment obligations will increase accordingly.

Issuing equity in the current stage achieves multiple objectives:

• Accumulating more Bitcoin
• Strengthening liquidity reserves
• Reducing future leverage pressure from payment obligations

In this sense, the ATM mechanism can be seen as a forward-looking de-leveraging tool.

The company doesn’t have to wait until dividend payment pressure materializes to react passively; instead, it proactively and gradually solidifies its equity base in advance.

This helps improve coverage ratios and enhances the overall risk resilience of the capital structure.

Why mNAV Might Expand Again

The core question remains: what factors would drive mNAV to expand again?

Historically, the answer has been relatively simple.

mNAV expansion stemmed from rising Bitcoin prices.

Investors viewed MicroStrategy as a leveraged investment vehicle for Bitcoin, so when Bitcoin rose rapidly, the company’s stock price appreciated even more significantly.

However, the ongoing evolution of the company’s capital structure is introducing a second potential valuation driver.

As the preferred stock layer continues to expand, and the company consistently demonstrates its ability to raise capital across different investor groups, the market may begin to see it not just as a Bitcoin holder, but as a Bitcoin financial platform.

In other words, investors may start pricing this financial engine itself.

From Bitcoin Treasury to Bitcoin Capital Markets Platform

If this evolutionary trend continues, the company may ultimately transform into a quasi-Bitcoin financial institution.

Different investor groups find their place at different levels of the capital stack:

• Yield-seeking investors allocate to preferred securities.
• Growth-seeking investors allocate to equity.
• The company leverages these capital sources to continuously accumulate Bitcoin and expand its financial operations.

This structure is gradually forming a capital market operating mechanism centered around Bitcoin.

In this scenario, the company’s valuation reflects not only the value of its Bitcoin holdings but, more importantly, its core ability to continuously attract capital and transform it into Bitcoin-based financial products.

This logic could support a sustained premium in mNAV.

The Capital Flywheel Taking Shape

If this model operates successfully, it will create three mutually reinforcing drivers:

• Preferred market demand → Funds Bitcoin purchases
• Equity market demand → Prices platform growth
• Bitcoin appreciation → Strengthens balance sheet quality

The three support each other, forming a positive feedback loop.

The result is a financial structure capable of continuous expansion alongside Bitcoin’s development.

Re-framing the Perspective on mNAV

The debate about whether mNAV can expand again typically assumes the answer is a function of Bitcoin’s price.

But this assumption may soon become outdated.

In the last cycle, mNAV expansion stemmed from Bitcoin’s rise.

In the new cycle, mNAV expansion may stem from value creation within the capital structure itself.

If MicroStrategy successfully builds a scalable Bitcoin capital markets platform, its equity premium will derive not only from its Bitcoin holdings but from the entire financial ecosystem built around Bitcoin.

If this vision materializes, the discussion about mNAV will change completely.

Then, the core question will no longer be whether the premium will reappear.

But rather, how large this platform can ultimately scale.

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