Janice R. Andrews
A clear reminder of the erratic nature of cryptocurrencies is the recent sharp decline in the value of MicroStrategy Inc.’s shares, which is well-known for being the largest corporate holder of Bitcoin. This decline highlights the dangers of utilizing the company’s shares as a stand-in for Bitcoin investments.
Investors in MicroStrategy have had an especially turbulent week as the company’s shares fell 16% on Monday, significantly more than the 10-fold decline in Bitcoin. This downturn persisted into Tuesday, when the stock fell 5.7% as Bitcoin pulled down from its all-time highs. After the company’s value quadrupled in a single month, the stock saw its worst two-day collapse since 2022, with cumulative losses for the week totaling 20%.
Since 2020, MicroStrategy has been actively acquiring Bitcoin, so converting its shares into a medium of exchange for those who want exposure to the cryptocurrency without having to buy it outright. The firm has acquired around $14 billion worth of Bitcoin through the use of debt through two recent convertible debt offerings, which is more than 1% of the entire amount of Bitcoin in circulation.
Given its debt load, market capitalization of almost $24 billion, and core company valuation, MicroStrategy’s shares appear to be trading at a premium of over 90% over the value of Bitcoin as reported on its balance sheet. According to Benchmark analyst Mark Palmer, this financial arrangement produces a special kind of financial alchemy in the market.
Whether or if investors view MicroStrategy’s recent decline as a chance to buy the dip will determine their course of action. Purchasing MicroStrategy has several benefits over other options, such as Bitcoin exchange-traded funds (ETFs), and is effectively a leveraged wager on the future success of Bitcoin.
According to TD Cowen’s managing director of equities research, Lance Vitanza, MicroStrategy is a compelling choice for investors who want exposure to Bitcoin without having to pay the management costs associated with ETFs. In Vitanza’s opinion, the long-term advantages outweigh the premium that MicroStrategy shares sell at, especially for investors who expect a sizable increase in the value of Bitcoin. He continues to see 10% upside potential from the stock’s current price of $1,560 in his price goal.
Vitanza highlights the way in which MicroStrategy’s advantages over ETFs compound over time, implying that the premium seen in the market is fair given these considerations.
The recent decline in MicroStrategy’s stock price emphasizes the dangers of utilizing it as a stand-in for Bitcoin investments. Investors must carefully balance the company’s benefits over alternative investing vehicles such as exchange-traded funds (ETFs) against the significant volatility and leverage that come with MicroStrategy’s approach focused on Bitcoin.
