The future of MSTR, mNAV, and Bitcoin treasury reserves

Source: On-Chain Mind, compiled by Shaw Jinse Finance

In the financial sector, there are some concepts that most of us accept without truly questioning them. For example, the price-to-earnings ratio, the "fair value" indicator, and even the belief that the value of currency itself will remain stable. But when you take a step back and think about it, some of these notions start to look less like immutable natural laws and more like collective beliefs supported by tradition.

This article delves into the concepts of Strategy (MSTR), the market value to net asset value ratio (mNAV), and how these concepts adapt to the evolving world of companies centered around Bitcoin. It offers a more fundamental and philosophical examination of this new type of company, linking familiar ideas from traditional finance (TradFi) while questioning many assumptions that investors often take for granted.

In the end, you will understand that companies like MSTR are not just "buying Bitcoin" — they are reshaping the potential landscape of stock value for the next decade.

Let's get started.

Key Points Overview

• Challenging Traditional Indicators: Free Cash Flow per Share (FCF/Share) is the "North Star" of traditional stock investments, and it bears a close resemblance to Bitcoin per Share in companies that hold Bitcoin reserves.
• The Power of Growth Narrative: Investors are betting on long-term growth despite numerous unknowns, which complements Bitcoin's outstanding compound interest rate.
• mNAV is the "new price-to-earnings ratio": It is not only a valuation tool but also indicates operational strength, financing capability, and investor confidence in Bitcoin holdings.
• Technical Signals for MSTR: Indicators such as the 200-day moving average and Z-score probability waves suggest that the company's current price of around $350 is a highly attractive entry point.

FCF/Share: The North Star of Traditional Investment

If we simplify the essence of stock investment, one indicator often stands out: Free Cash Flow per Share (FCF/Share).

Why? Because free cash flow represents the actual cash generated by a company after paying for operating expenses and capital investments.

Free cash flow per share is often considered the ultimate indicator of a stock's effectiveness in returning capital to shareholders, whether through dividends, buybacks, or reinvestment. A free cash flow per share that grows consistently at 15% per year is often referred to as "exceptional," because at that rate of compounding, the stock's value roughly doubles every 5 years—an achievement that very few companies in the world can sustain.

This is why the market tends to give a premium valuation to such companies, usually with a price-to-earnings ratio between 25 and 30 times. In some cases, investors are even willing to accept a price-to-earnings ratio of over 100 times. At first glance, this seems absurd—many companies do not survive long enough to see the expected return period. But the reason is simple: growth. If the story is compelling enough, investors will be willing to pay a high price.

The Madness of High Price-to-Earnings Ratios

Willingness to pay extremely high price-to-earnings ratios for profits is one of the widely accepted quirks in the investment field. Few people stop to think about the reasons behind it. But if you take a step back, people are actually betting on an unknowable future.

• Will this company still exist in 25 years?
• Will it still dominate its industry?
• Will the compound growth of returns continue uninterrupted?

Despite these uncertainties, the narrative of growth itself has become a currency. The market holds it as a standard.

The reason is that if many people believe in the growth of a company, this belief can drive its stock price up for many years to come. This concept is widely accepted in the investment community, but when you analyze it simply and engage in a bit of philosophical thinking, considering the actual situation, you will find that it is quite crazy.

The Rise of mNAV

Now, let's apply this logic to Bitcoin treasury reserve companies. Currently, the same concept is unfolding in the field of Bitcoin reserve companies. mNAV (market value to net asset value ratio) is the "premium" that investors pay for a company to enable it to acquire more Bitcoin in a more efficient way than they could achieve on their own.

I like to compare it to the price-to-earnings ratio of the "new era". In fact, conceptually, it is more similar to the price-to-book ratio, although this term is less familiar to the average investor. Interestingly, the current price-to-book ratio of the S&P 500 index is about 5.4 times, with a historical fluctuation range between 1.5 and 5.5, which is remarkably similar to the historical average mNAV of MSTR.

The price-to-book ratio measures the relationship between a company's market value and its book value (assets minus liabilities). It indicates how much investors are paying for each dollar of net assets.

It is truly refreshing to see many investors questioning why we should pay a premium for underlying Bitcoin assets, rather than blindly accepting this concept as is done in many aspects of traditional finance. We should question why things are priced this way. I believe this is a significant advantage for the average Bitcoin investor: the ability to challenge widely accepted views that are merely followed because "that's how it has always been done."

Why does the Bitcoin premium exist?

• Trust Growth Plan — The company will find ways to make the growth rate of its asset portfolio exceed that of individuals.
• Access to cheap funding - something that ordinary investors can never reach.
• Operational Leverage - Achieving faster expansion through structures such as convertible bonds or equity financing.

Can you get a loan at an interest rate of about 0% to accumulate more Bitcoin? Almost impossible. This is where the strength of the most outstanding Bitcoin reserve companies lies—especially for larger and committed companies like Strategy (MSTR).

Specifically, companies like MSTR utilize convertible bonds, where lenders accept lower interest in exchange for equity conversion rights. This effectively subsidizes the accumulation of Bitcoin. In traditional finance, this is similar to how tech growth companies use leverage to scale up without immediately diluting equity.

But if a 15% annual growth rate in free cash flow per share of traditional financial stocks is considered "exceptionally outstanding," then why do we give companies like MSTR that hold Bitcoin a valuation premium of 1.5 times (or even 4 to 5 times)? It should be noted that Bitcoin has had a compound annual growth rate of 60% to 80% over the past 5 to 10 years.

I believe this is a key concept that the investment community has yet to fully understand. They still generally do not realize that Bitcoin is one of the top five assets in the world and is gradually absorbing global capital value. This is also a major reason why I have a long-term outlook on companies like MSTR.

mNAV Discounts: Traps and Real Signals

So, can companies trade at a mNAV below 1? Of course. According to Bitcoin Treasuries, among 167 publicly traded companies, 21 (about 13%) are trading at a discount to mNAV.

This is very similar to the reasons why certain stocks trade at extremely low price-to-earnings ratios, such as 5 times earnings. Many traditional financial investors fall into this "value trap," believing they have purchased a bargain at a very low price simply because the stock price is low. However, most of the time, the reason for the low stock price is that the company has failed to deliver on the performance promises expected by investors.

I believe that the concept of value traps is also applicable to Bitcoin reserve companies. For those companies trading at a discounted mNAV, this indicates a skeptical attitude from the market, which may be related to the following factors:

• Weak Governance;
• Fragile financing model;
• Current operational risks of the business.

In fact, this may also indicate that investors are confident in these companies' ability to hold Bitcoin. Because, from a mathematical perspective, when mNAV is below 1, the advantageous course of action for the company's shareholders is to sell Bitcoin to repurchase shares.

But companies like MSTR have resisted this temptation. Even during the bear market in 2022, when its mNAV fell below 1, they preserved their entire Bitcoin holdings by restructuring their debt. That is why I am quite confident that MSTR will not fall into this category. I have no doubt that even in less favorable conditions, they will continue to hold all their Bitcoin. This long-term holding philosophy stems from Michael Saylor's vision of viewing Bitcoin as pure collateral.

I do not have confidence in the other 166 listed companies. The only company I would categorize as "HODL long-term holding" is the Japanese company Metaplanet.

Therefore, mNAV is not just a buy or sell signal - it is a perspective. A premium may indicate strong confidence, or it could just be speculation, while a discount may reflect difficulties, or it may contain value. The key lies in the specific circumstances:

• How much has the company's Bitcoin per share increased?
• Does it have other sources of income to support the valuation?
• How is its capital model's risk resistance capability during market cycles?

MSTR's Financial Magic

The real difference between MSTR and many other Bitcoin reserve companies lies in its diversified fiat financing capabilities, which effectively allow it to purchase its held Bitcoin assets. Its low-cost financing tools, such as convertible bonds, and the continuously expanding list of preferred stock issuances enable it to increase its Bitcoin holdings more quickly, without diluting the rights of ordinary MSTR shareholders.

For example, convertible bonds allow borrowing at an effective interest rate close to zero when converted to equity during a bull market. This creates a flywheel: more Bitcoin increases the collateral value, enabling the borrowing of more funds. In my opinion, this financial magic should command a considerable premium. Just like in traditional finance, Nvidia commands a reasonable price-to-earnings ratio due to its growth rate of free cash flow per share far exceeding that of almost all other companies.

For most people, this is a completely new concept. Bitcoin reserve companies aim to increase the number of Bitcoins per share as quickly as possible, while traditional financial companies seek to increase the free cash flow per share at the fastest rate. It's the same idea. One side hopes to grow a pure capital that is expected to appreciate at least 30% to 50% annually for the foreseeable future, while the other side tries to accumulate their favorite fiat currency, which depreciates at a rate of 8% to 10% each year.

I know that in ten years, according to their respective strategic developments, which company is more likely to create more value for its shareholders.

Market Signals

Finally, let's quickly go through some charts to uncover potential value opportunities.

200-Day Moving Average Signal Shows Strength: MSTR is expected to show a green signal point on the 200-day moving average chart for the second time in this cycle, with its trading price at the 200-day average of $353. This level is a key support level for bulls, marking the beginning of this rally. If it can stabilize at this price level, it may indicate strong upward potential.

Z-score Probability Wave: MSTR's stock price has fallen to a level of negative 2 standard deviations, which is exactly 353 dollars. Historically, in this bull market, when the stock price drops below negative 1 standard deviation, it often indicates that the price will experience significant volatility. If the macroeconomic situation remains optimistic, the stock price is very likely to revert to the mean.

Oversold Condition: My mean reversion oscillation indicator (which has a logic similar to the RSI relative strength index) shows that MSTR is in a deep oversold area. Past occurrences at this level have often led to short-term rebounds, and sometimes even significant upward trends.

MSTR Investment Opportunity Priced in Bitcoin: When priced in Bitcoin, MSTR's risk oscillation indicator is at one of its lowest values, which is a strong signal for investors to shift investments from Bitcoin to MSTR in a low tax environment. Historically, this lag in MSTR's stock price relative to Bitcoin tends to be quickly compensated.

Why the lagging MSTR stock price does not worry me

In summary, should I be concerned that MSTR's stock price is lagging behind Bitcoin's current increase? Not at all. The mNAV may have compressed to around 1.5, but the true measure of its Bitcoin strategy remains intact: the number of Bitcoins per share is still increasing weekly. To a large extent, this is all that I care about.

Just like traditional stocks, their free cash flow per share may increase year by year, but stock prices can fluctuate wildly. This is the fascinating aspect of the irrational investor psychology. However, if the fundamentals continue to improve (for example, the number of Bitcoins per share keeps increasing), I would jump at the chance to buy this company at a discount. Because as we know, when investor sentiment shifts and the price-to-earnings ratio expands again, this stock has the potential to make a significant profit.