Turbo-Charged Bitcoin Profits - MicroStrategy (MSTR)
Why MicroStrategy (MSTR) is Your Best Bet
Are you eager to invest in Bitcoin, but you want to make even more money with Bitcoin than owning it directly?
Or are you facing barriers with your retirement account or brokerage with buying Bitcoin ETFs? Look no further than MicroStrategy (MSTR), a company that has become a go-to option for many investors seeking leveraged exposure to Bitcoin.
The Explosive Growth of MicroStrategy
MicroStrategy's stock price skyrocketed from around $45 in January 2024 to approximately $421 by November 2024—an astonishing increase of nearly tenfold. At the same time, Bitcoin doubled in price, from around $45,000 in January 2024 to approximately $98,000 by November 2024. In other words, MicroStrategy was able to translate a doubling of the Bitcoin increase to about a tenfold increase in its shares.
If you purchased 1 Bitcoin in January 2024 for $45,000, it would now be worth $98,000.
By comparison, if you invested $45,000 in MicroStrategy shares in January 2024, your investment would now be worth approximately $421,000.
$421,000 vs. $98,000: That is quite a different outcome.
So, what’s driving this surge, and why are investors flocking to MicroStrategy for a turbocharged Bitcoin experience?
MicroStrategy Incorporated (MSTR)
Currency is USD
Source: https://stockanalysis.com/stocks/mstr/
The Case for Investing in MicroStrategy
MicroStrategy has become a major player in the Bitcoin market. With over 330,000 Bitcoins valued at around $30 billion, the company’s stock price is closely tied to Bitcoin’s performance. When Bitcoin prices rise, MicroStrategy’s stock often increases even more dramatically, giving investors a chance to benefit from Bitcoin's price swings without needing to own the cryptocurrency directly.
To illustrate how this leverage works, let’s look at a simple example. Imagine you borrow $1 million to buy 10 Bitcoins at $100,000 each. At first, your net worth is zero—$1 million in assets (the Bitcoins) minus $1 million in debt. Now consider two possible outcomes:
Scenario 1: If Bitcoin doubles in price to $200,000, your net worth increases to $1 million—you have $2 million in assets (the Bitcoins) minus $1 million in debt.
Scenario 2: If Bitcoin drops to $50,000, your net worth falls to negative $500,000—you have $500,000 in assets minus $1 million in debt.
This simple example reflects MicroStrategy’s strategy: when Bitcoin prices go up, its stock price can soar; when prices fall, the stock price is likely to drop sharply.
MicroStrategy's aggressive approach to buying Bitcoin has redefined its business model and positioned it as a high-risk, high-reward investment option. As the company continues to use its financial resources for more Bitcoin purchases, investors need to consider both the potential for significant profits and the risks associated with this volatile strategy.
A Closer Look at MicroStrategy’s Strategy
Investing in MicroStrategy is often seen as a leveraged play on Bitcoin due to its massive cryptocurrency holdings and strategic financial decisions. The company has been aggressively accumulating Bitcoin since adopting it as its primary reserve asset in 2020.
By raising capital through convertible debt and equity offerings specifically to purchase more Bitcoin, MicroStrategy has positioned itself as one of the largest corporate holders of the cryptocurrency.
MicroStrategy's business model is quite simple: they focus on holding Bitcoin. As the price of Bitcoin rises, they sell more shares and take on more debt to buy even more Bitcoin. This cycle continues as long as Bitcoin continues to rise. However, this approach is essentially a leveraged bet on Bitcoin, which means it can backfire. If the price of Bitcoin drops significantly, the entire business could collapse like a house of cards.
So if you're not optimistic about the long-term value of Bitcoin, it's best to avoid investing in MicroStrategy.
Recent Developments & Valuation
Recent Developments
As of November 17, 2024, MicroStrategy and its subsidiaries owned about 331,200 bitcoins, acquired for approximately $16.5 billion, averaging around $49,874 per bitcoin.
Source: https://www.sec.gov/ix?doc=/Archives/edgar/data/1050446/000119312524260452/d828461d8k.htm
Valuation
On November 23, 2024, MicroStrategy's market capitalization reached an impressive $94.8 billion, according to Yahoo Finance. If you were to buy MicroStrategy at its current market capitalization, you would be effectively paying about $286,000 per bitcoin ($94,800,000,000 / 331,200 = $286,000). Given that Bitcoin is trading at around $98,000, this suggests a significant overpayment.
This overpayment hinges on investor confidence in MicroStrategy's ability to leverage its Bitcoin holdings for future growth. Here are three potential strategies for investors:
Buy Now: If you believe in a bright future for Bitcoin, purchasing shares of MicroStrategy now might be a good move, in order not to miss out. But be aware that you overpaid. That can work if Bitcoin continues to increase and more people buy MicroStrategy, but it may backfire if that doesn’t happen.
Wait for a Pullback: Alternatively, you might choose to wait for a potential drop in Bitcoin prices. Such a decline could dramatically affect MicroStrategy's stock due to its leveraged position, possibly creating an excellent entry point if you anticipate a subsequent Bitcoin recovery. But such a pullback may not happen for a while, and you may miss out on further increase in MicroStrategy’s share price.
Combination Approach: Buy some shares now to hedge against missing out on potential gains while being ready to purchase more if there is a pullback in Bitcoin prices.
In summary, an investment in MicroStrategy offers a unique opportunity to gain leveraged exposure to the price movements of Bitcoin, but also involves significant risks.
The History of MicroStrategy
MicroStrategy's transformation into a Bitcoin powerhouse began in 2020 when it decided to make Bitcoin its primary treasury reserve asset. Here’s a brief overview of the company’s journey:
Chapter 1: Founding and Early Years (1989-1998)
MicroStrategy Incorporated was founded in November 1989. Initially, the company focused on software consulting services aimed at helping clients access and analyze large databases. By the mid-1990s, MicroStrategy shifted its focus toward developing data-mining and decision support software. The introduction of its flagship product for web-based applications in 1996 allowed clients to query databases via the internet without needing specialized software, setting the stage for future growth.
Chapter 2: Going Public and Growth (1998-2000)
On June 11, 1998, MicroStrategy went public, trading on NASDAQ under the symbol MSTR. This initial public offering enabled the company to raise significant capital for further expansion and product development. Following its IPO, MicroStrategy experienced rapid growth and became a leader in the business intelligence software sector. However, this period was also marked by aggressive accounting practices that would later lead to substantial challenges for the company.
Chapter 3: Financial Restatement and Recovery (2000-2002)
In March 2000, MicroStrategy announced that it would restate its financial results for 1998 and 1999 due to accounting irregularities. This revelation caused the stock price to plummet dramatically. Despite these setbacks, MicroStrategy undertook a significant restructuring effort and implemented stricter financial controls. By the end of 2002, the company returned to profitability, managing to stabilize its operations despite a significant drop in revenue during this tumultuous period.
Chapter 4: Providing Analytics Software and Services (2002-2020)
From 2002, MicroStrategy continued to provide global enterprise analytics software and services that empowered enterprise users with actionable intelligence.
Chapter 5: Bitcoin Strategy and Modern Era (2020-Present)
The year 2020 marked a pivotal moment for MicroStrategy as it began adopting Bitcoin as a primary treasury reserve asset. This strategic pivot positioned the company as one of the largest corporate holders of Bitcoin globally, significantly influencing its market perception and stock performance. In July 2024, MicroStrategy announced a 10-for-1 stock split, aimed at making shares more accessible to investors and enhancing liquidity in the market. This move reflected the company's ongoing commitment to adapting to market conditions and investor interests.
Dividend Policy
Throughout its history, MicroStrategy has not been known for regular dividend payments. Instead of distributing profits to shareholders, the company has primarily reinvested its earnings into growth initiatives and Bitcoin acquisitions. This focus on expanding its Bitcoin treasury rather than providing dividends underscores MicroStrategy's strategy of leveraging digital assets for long-term value creation.
In summary, MicroStrategy's journey from a software consulting firm to a major player in business intelligence—and now a significant Bitcoin holder—illustrates its adaptability and strategic vision. The company's history is characterized by both triumphs and challenges, particularly regarding financial management and market positioning.
Conclusion
As Bitcoin continues to capture global attention and reach new heights, investing in MicroStrategy could be an attractive opportunity for those looking to ride the leveraged wave of cryptocurrency growth.
However, potential investors should carefully consider the volatility and risks involved before diving into this high-stakes investment arena!
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Past performance of stocks and assets is not an indicator or guarantee of future performance of stocks and assets.
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In my opinion, there are two risks to MSTR.
1. We wait for a pullback to buy at a better risk-reward entry point, which never offers a significantly better price—the risk of missing out on potential gains.
2. We invest now, paying the equivalent of more than twice the price of Bitcoin, and either that premium collapses, Bitcoin goes into a long bear market, or MSTR goes bankrupt or has to sell at a loss.
Risk two is far worse than risk one. We must be patient and only invest when we have an edge.