French Asset Manager Tobam: Three Reasons Strategy Outperforms Bitcoin

Paris-based asset manager Tobam has researched exactly why Michael Saylor's Strategy (MSTR) has continued to outperform bitcoin (BTC)

French investment firm Tobam has published a research paper explaining why research-heavy quantitatively focused French asset manager has published a paper explaining exactly why Michael Saylor’s Strategy (MSTR) has continued to outperform bitcoin (BTC).

The dominant cryptocurrency is generally considered the best performing asset of all time. Bitcoin cumulative gains topped 20,000,000 percent between 2011 and 2021, but in August 2020, Strategy (formerly Microstrategy) initiated a radical pivot, transitioning from being a software business to a bitcoin treasury company.

Investors who wanted bitcoin exposure without actually holding the cryptocurrency began purchasing Strategy stock at a premium, and according to Tobam, Strategy’s stock price shot up by a factor of 7.5 while BTC only grew by a factor of 3.2, less than half of MSTR’s growth.

And now, after crunching the numbers, Tobam has distilled the meteoric success of Strategy’s bitcoin treasury approach down to three key reasons.

“We provide an exact decomposition of these rewards into three sources,” Tobam writes. “First, the monetization of a significant part of the pre-existing premium into book value. Second, taking advantage of the performance of bitcoin to which it has a growing exposure, and finally being subject to the variations in its bitcoin price premium.”

First, Strategy sells its shares and uses the proceeds to buy additional bitcoin, aiming to increase the company’s bitcoin yield, or the percentage change of the number of bitcoins held for each fully diluted share.

Secondly, as the firm increases its bitcoin yield, its shares increasingly magnify the cryptocurrency’s price appreciation, what Tobam calls “bitcoin performance.”

Finally, MSTR’s bitcoin price premium, or the extra dollar value per bitcoin held, has fluctuated in a way that contributes to the stock’s outperformance relative to bitcoin itself.

In short, Tobam concluded that Strategy has become a leveraged bet on bitcoin, but its ability to outperform the digital asset is a combination of these three factors and not simply due to passively holding bitcoin.

“The performance of MSTR cannot be summarized solely by the variations in its bitcoin holdings and ratio premium,” the paper concludes.

"This decomposition unveils the deep-seated rationality underpinning MSTR's stock price movements, offering valuable insights for informed investment decisions in the context of leveraged bets on cryptocurrencies."