MicroStrategy’s Bitcoin Bet Pays Off with Soaring Stock
MicroStrategy, a software company that has been in existence for 35 years, has seen its stock soar by 337% in 2023. This makes it one of the top gainers among U.S. companies valued at $5 billion or more, surpassing the rally of tech giants like Nvidia and Meta. The main reason behind MicroStrategy’s investor appeal is its massive holding of bitcoin. Since mid-2020, the company has accumulated approximately 174,530 bitcoins, worth about $7.65 billion. As a result, 90% of MicroStrategy’s market value is directly tied to its bitcoin holdings.
A Unique Approach to Cash Management
In July 2020, MicroStrategy made the decision to allocate some of its cash reserves to alternative assets, including digital currencies like bitcoin. This move was driven by CEO Michael Saylor’s belief that bitcoin represents a form of digital gold that offers superior qualities compared to traditional gold. By purchasing bitcoin as part of its treasury strategy, MicroStrategy provided investors with indirect exposure to the cryptocurrency through its stock.
The Scarcity Premium and Future Prospects
MicroStrategy’s stock has outperformed bitcoin this year due to what analysts call a “scarcity premium.” There are limited options for equity investors to tap into the bitcoin market directly, making MicroStrategy an attractive choice. While the prospect of upcoming bitcoin exchange-traded funds (ETFs) may introduce more competition, it is unlikely to pose a significant threat to MicroStrategy.
Expanding Business Opportunities
MicroStrategy’s investment in bitcoin not only serves as a bet on the direction of the cryptocurrency but also opens up additional opportunities for the company. Unlike ETFs, which are passively managed, MicroStrategy has the flexibility to put its bitcoin holdings to work by using them as collateral or for other business ventures. The company’s software business also generates steady cash flow, allowing it to continue buying more bitcoin.
Short Sellers Face Losses
Short sellers who bet against MicroStrategy have faced substantial losses this year. As of early December, they were down $1.4 billion, with 23% of MicroStrategy’s publicly available shares being shorted. Despite this, the company remains committed to its bitcoin strategy and continues to purchase more bitcoins.
Hot Take: MicroStrategy’s Bitcoin Gamble Pays Off
MicroStrategy’s bold decision to invest heavily in bitcoin has paid off tremendously, with its stock soaring and outperforming the cryptocurrency itself. By becoming a major holder of bitcoin, MicroStrategy has attracted investors looking for exposure to the digital asset through traditional equity investments. This unique approach has allowed the company to benefit from both the growth potential of bitcoin and the stability of its software business. As the adoption of digital assets increases, MicroStrategy is well-positioned to capitalize on the continuing maturity of the regulatory environment around bitcoin and growing institutional demand.
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