UK Small-Caps Mimic MicroStrategy Bitcoin Strategy for Stock Boost

Several UK-listed small-cap companies are adopting a strategy similar to that of MicroStrategy, a US-based technology firm known for its aggressive Bitcoin treasury model. The plan involves issuing new shares, raising cash, and purchasing Bitcoin, with the aim of boosting stock prices by providing investors with indirect exposure to cryptocurrency, which remains challenging to access directly in the UK.

This development was highlighted by Axel Cabrol, Co-Deputy CIO at TOBAM, whose research paper "Accounting for the Performance of MicroStrategy" shows that British firms are attempting to replicate MicroStrategy's strategy, which saw the company massively outperform Bitcoin itself between 2020 and 2024. Axel believes that while this model carries risks, it could be a valuable tool for reviving UK equities. However, he cautions that simply adding Bitcoin to a company's balance sheet does not guarantee success. "Bitcoin adoption is no magic wand that turns lead into gold," Axel warned, emphasizing the importance of understanding the strategy and its fit with the business.

MicroStrategy's success can be attributed to a three-pronged structure. Between 2021 and 2024, the company's stock jumped 7.5 times, while Bitcoin rose just 3.2 times. According to TOBAM, this outperformance was driven by turning the stock's premium into book value and buying more Bitcoin with it, increasing exposure to Bitcoin over time, and taking advantage of spikes in the premium at which its stock traded compared to the value of its Bitcoin holdings. The strategy works best when the company can issue new shares at a premium and use that money to buy more Bitcoin, generating what TOBAM calls a "Bitcoin Yield."

In 2021 and 2024, MicroStrategy managed to generate a Bitcoin Yield of around 50%. However, the strategy is not foolproof. In 2023, despite adding 43% more Bitcoin to its holdings, the company had to increase its number of shares by 48%, turning the Bitcoin Yield negative and dragging on the stock's performance. The performance also depends on the Bitcoin Price Premium, which fluctuates based on demand. MicroStrategy's returns were boosted when this premium grew, allowing investors to get more than just the coin's performance.

Exposure also played a significant role. The company's realized exposure to Bitcoin (β) was sometimes higher than one. In 2022, during a crypto sell-off, the firm's stock traded at a discount to its Bitcoin, pushing its exposure above normal. In 2024, the company started with a relatively low beginning-of-year exposure (β₀ = 0.75), but the massive 61% Bitcoin Yield that year pushed realized exposure to 1.2. In simple terms, MicroStrategy found ways to give shareholders more upside than Bitcoin itself. This is exactly what UK firms want. However, the model only works if the company knows how to manage dilution, time the issuance of shares, and buy Bitcoin strategically. If they screw up the balance, the strategy can collapse fast.

Axel said the recent moves by UK small caps to mimic this structure could finally give British retail and wealth investors a practical way into crypto markets. "This will also allow UK wealth and retail investors to gain exposure to cryptocurrency where it has previously been more challenging," he said. With the UK far behind the US in regulated crypto investment options, this indirect route might be the only access some investors have for now. However, TOBAM’s research ends on a warning. Axel, Yves, and Tristan made it clear that this model is not a guaranteed fix. Execution is everything. If done wrong, the company ends up with diluted equity and poor returns. If done right, it could be the last card these firms play to stay listed and to finally get some attention from markets that have mostly forgotten them.