MicroStrategy Incorporated (stock ticker: $MSTR), the company widely acclaimed in the cryptosphere for buying 70 470 Bitcoins as a “treasury reserve asset”, whatever that means, closed yesterday at $631. That’s a roughly $450 return for anyone who has bought the stock before their Bitcoin gamble.

Here’s why that doesn’t make sense. MicroStrategy has bought their bitcoins at an average price of $15,964 per Bitcoin. As I write this, Bitcoin trades around $38,500 - so Michael Saylor’s YOLO trade has brought in:

($38,500 - $15,964) * 70,470 = $1.59 billion

Additionally, MicroStrategy has issued $650m in convertible bonds, and these bonds have a standard “automatic conversion” clause, which is triggered if the stock trades above 130% of the conversion price ($398) for a given period of time (usually 30 days). We’re trading above it right now. Assuming the clause is triggered, the company will cancel $650m in long-term liabilities (effectively bringing in another $650m), at the “cost” of issuing an additional 1.633 million of common stock.

$MSTR market cap before the Bitcoin trade: $1.68 billion.

$MSTR market cap with its stock at $631 and assuming the convertible will be converted: $6.88 billion.

Paper gains in Bitcoin plus canceling the convertible bond brought in $2.24 billion, while the market cap has increased by $4.2 billion. That’s roughly a $2 billion premium, coming from hopes that Michael Saylor has been struck by lightening and has suddenly become a genius trader that will keep hitting YOLO home runs (or, less sarcastically, because $MSTR is a way to get some exposure to Bitcoin’s wild run, plus some option expiration gamma flip games). Unless, of course, something groundbreaking has happened over the last couple of months in what used to be MicroStrategy’s core business (software), before its stock became a Bitcoin coinflip.

I’m not even taking into account the pile of employee stock options that are suddenly in the money, and that will be exercised, further diluting the stock.

So if you want to buy Bitcoin and think buying $MSTR stock is a way to do it, know that MicroStrategy’s Bitcoin holdings are currently worth about $2.7 billion ($38,500 * 70,470 Bitcoins). Throw in the $2 billion premium, and you’ll be buying Bitcoin at:

($2.7 billion + $2 billion)/70,470 = $66,700 per Bitcoin.

Caveat emptor.

Full disclosure: I have some $MSTR puts. Not investment advice. I just hate money and enjoy staying poor.

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