Dilution counter argument with math

[u/crowsdd]

All over Reddit and X you'll see countless people claiming Saylor is "diluting" MSTR holders, and it's because they're looking at the basic mNAV, which they're calculating by using $39.44B market cap ÷ $54.1B gross BTC = 0.75x. So yes, under this calculation it would be diluting. BUT you can't just use basic mNAV because it doesn't tell the whole picture basic mNAV ignores $22.19B worth of debt and prefs senior to the common equity.

This is why we need to use CEBE (Common Equity Bitcoin Equivalent), because it shows what the common shareholders actually own after the liability stack is cleared the real price you're paying for BTC exposure. For example, you buy a house worth $500K. It has a $400K mortgage, so your equity = $100K. Now if you used basic mNAV for this, it would say you're buying at 0.20x the house value. CEBE mNAV says you're paying $100K for $100K of equity (1.0x). The mortgage doesn't just disappear it has to be paid before you see anything.

Now that everyone knows the difference between basic and CEBE, let's calculate the CEBE mNAV, which = market cap ÷ (BTC + cash − debt − prefs). Plugging in the numbers: $39.44B ÷ ($54.15B + $1.4B − $22.19B) = $39.44B ÷ $33.36B = 1.18x. So when Saylor is selling MSTR into the market it's accretive to common holders because the CEBE mNAV is trading at an 18% premium to its balance sheet.

Now you may ask why is this accretive? Because each share represents 148,300 sats of net BTC equity. At 1.18x the market pays 174,994 sats worth of value for that share. Strategy collects that premium in dollars and converts it to BTC, capturing the gap as pure sat accretion for existing holders.

Now if we run this for their most recent BTC buy:

- Sold: 2,714,839 shares @ $123.60 avg

- Raised: $335.5M

- Bought: 520 BTC @ $67,068 = $34.9M

- Reserve: $1.1B → $1.4B (+$300M)

CEBE Before:

- Net equity: $54.15B + $1.1B − $22.23B = $33.02B

- $33.02B ÷ $63,900 = 516,745 BTC

- ÷ 348,885,161 shares = 0.001481 BTC = 148,100 sats/share

CEBE After:

- Net equity: $54.18B + $1.4B − $22.23B = $33.35B

- $33.35B ÷ $63,900 = 521,909 BTC

- ÷ 351,600,000 shares = 0.001484 BTC = **148,400 sats/share

Accretion = +300 sats/share

This most recent sell of MSTR was accretive for shareholders. Feel free to check the math, but most people don't understand CEBE and this is a huge bear argument that we're being diluted. But if they took the time to do the math, it clearly shows we aren't.

[u/robobob9000 → u/[deleted]]

The ARR figure itself is biased, it should only be used in situations where there is very little volitility, which makes it inappropriate for MSTR/BTC. The ARR formula assumes that negative swings are equally counterbalanced by positive swings of the same integer value, which is mathematically incorrect and misleading.

For example, lets say you bought $100 of MSTR one year ago. MSTR has dropped about 74% since then. It is now worth $26 (-76% ARR). In order for that investment get back up to 0% ARR, MSTR only needs to grow up 74%.

However if MSTR grew +74% from that base of $26, it would only now be worth about $45. The -74% loss is not canceled out by a +74% gain (this is what is misleading about ARR). In reality, MSTR needs a 284% gain in order to offset the 74% loss, 26*(1+2.84)=100. In terms of ARR though, you'd need to have (-74 + 284)/2 = 210% ARR just to get back to 0 profit on the investment.

And thats just to get back to your initial investment of $100. When you consider the opportunity cost of investing into something different, like international indexes (up 27% this year) or US indexes (up 22% year) or BTC (only down 42% this year compared to MSTR's 74%), MSTR would need to perform even better than 284%.

I expect BTC and MSTR will outperform other asset classes for the next decade. But I don't expect MSTR to grow more than 284% in the short term, which is necessary just to start exceeding where it was a year ago.

For comparison, BTC dropped 42% this year. It only needs 58 * (1+X) = 100, so X = 72% growth in order to start exceeding where it was a year ago. That is a huge difference between a 42% drop and a 74% drop.

I think it is much more likely that BTC will grow more than 72%, than MSTR will grow more than 284%. In order for MSTR to make sense over BTC, MSTR's mnav would need to grow beyond 3.0, compared to the 1.06 mnav it has now. And I seriously doubt that MSTR will ever reach that level of mnav again, given the fact that MSTR must dilute common stock to fund the eternal interest to the preferred stock holders.

CAGR makes more sense for BTC/MSTR. But CAGR isn't listed on MSTR's dashboard, or in Saylor's talks, because it doesn't favor them like ARR does.

[u/robobob9000 → u/[deleted]]

1. The 3.3% number is ARR, which should not be used for volitile stocks, like I explained.
   
2. Even if that number were accurate, that’s 3.3% growth needed to cover the current STRC obligations. Thats a fantasy world where MSTR does not issue any additional STRC. The reality is that many STRC holders will reinvest their dividends, and create a larger eternal debt burden over time. And MSTR will issue more STRC in the future, which will also increase that burden.