MicroStrategy's premium depeg from Bitcoin faces challenges in the digital asset treasury model.

[Coin World] MicroStrategy (MSTR)'s stock price premium has for the first time decoupled from its historical Bitcoin performance. These changes occurred amid the rise in Bitcoin (BTC) proxy trading, with MicroStrategy now being the largest corporate holder of pioneering crypto assets. The premium of MicroStrategy detaching from Bitcoin has raised questions about the sustainability of Michael Saylor's financial model. Other concerns include whether new entrants in the digital asset treasury (DAT) market are undermining the company's unique role as Wall Street's gateway to Bitcoin.

In retrospect, MicroStrategy's ability to accumulate Bitcoin on a large scale has always relied on a simple reflection mechanism. When its stock trading price is higher than the net asset value (mNAV), it can issue shares, raise cash, and purchase BTC appreciably. Since 2020, this financial alchemy has been the cornerstone of Saylor's strategy. However, according to researcher Joseph Ayoub, the emergence of multiple DATs is undermining this flywheel effect. If correct, this would mark a decisive turning point, as MicroStrategy's ability to fund new Bitcoin purchases through equity issuance may be permanently impaired.

DAT is a company that sells stocks to purchase digital assets. Since 2020, the digital asset treasury model has surged from around $10 billion in NAV to over $100 billion. In contrast, the current size of the Bitcoin ETF (exchange-traded fund) is approximately $150 billion. DAT attracts investors because they provide equity exposure to crypto assets, often at a significant premium. Ayoub describes them as modern closed-end funds. Unlike ETFs, most DATs cannot redeem stocks for the underlying assets. This makes valuations related to market sentiment rather than a direct redemption mechanism. This dynamic is reminiscent of the Grayscale Bitcoin Trust (GBTC), which traded at a huge premium before plummeting to a 50% discount during the bear market of 2022. Nic Carter from Castle Island Ventures pointed out historical similarities. He referenced an article comparing today's DAT boom to the investment trust craze of the 1920s and listed many similarities.

The risks facing Saylor's MicroStrategy are increasing as the premium declines, and Saylor is facing more scrutiny due to MicroStrategy's concentrated exposure to Bitcoin. Some investors believe that the company's recent updates have amplified Bitcoin's volatility. This will make the risks faced by stock holders more akin to those of a leveraged ETF rather than a traditional software company.

If MSTR continues to trade at a discount, there will be some consequences. Shareholder lawsuits may demand redemption at a price closer to NAV. Regulators may reclassify MicroStrategy as an investment company by reviewing precedents such as the Tonopah Mining of the 1940s and the GBTC saga of 2021. This move would impose stricter rules or force structural changes.

In this context, Ayoub warned that there is a saturation point for equity financing of the Bitcoin treasury. Data from the Bitcoin treasury shows that MicroStrategy holds nearly 630,000 BTC, with manageable debt levels. However, its premium depeg may indicate that its once-healthy cycle is breaking down. If this is the case, then this company, which has transformed its corporate Bitcoin strategy into financial alchemy, may face erosion from its unique advantages rather than the most severe tests brought on by the bear market.