Is MicroStrategy’s Bitcoin Purchase in Doubt?
The decision by MicroStrategy Inc. Chairman Michael Saylor to purchase Bitcoin may now be uncertain due to the imminent arrival of exchange-traded funds (ETFs) that will include the largest cryptocurrency.
SEC May Approve Bitcoin ETF Soon!
Following a significant court ruling earlier this year, the US Securities and Exchange Commission (SEC) is likely to approve ETFs that directly invest in Bitcoin. This has raised concerns among experts and investors about whether MicroStrategy’s shares will continue to maintain their premium. In fact, MicroStrategy itself has acknowledged this issue in a recent filing, with the company set to release its quarterly results soon.
In an August 1 filing, the Virginia-based business stated that if its Class A common stock is viewed as an alternative-to-Bitcoin investment vehicle and trades at a premium to the value of its Bitcoin holdings, that premium may be eliminated, causing the stock price to decline.
Lance Vitanza Analyzes MicroStrategy’s BTC Holdings
Saylor has accumulated about $5.5 billion in cryptocurrencies since mid-2020, transforming the struggling software business into a Bitcoin substitute for stock investors. MicroStrategy’s stock has surged more than fourfold during this period, mirroring the increase in Bitcoin’s value. In contrast, the benchmark Standard & Poor’s 500 Index rose by only around 40%.
Saylor began buying Bitcoin in 2020, citing the need to hold less cash due to diminishing inflation risks and stagnant software company income. He stepped down as CEO last year to focus on the Bitcoin component of his dual strategy.
Analyst Lance Vitanza from TD Cowen estimates that MicroStrategy’s shares currently carry a premium of around 30% above the company’s enterprise value due to its 158,245 Bitcoin holdings. If the SEC approves the ETFs in the coming months, Vitanza predicts that the premium could decrease to 15-25%.
Vitanza believes that even though the premium may decrease, it will not reach zero. He finds comfort in the fact that ETF adoption will drive up Bitcoin’s price, which would offset the decrease in the premium. Additionally, MicroStrategy’s core software business and its ability to borrow against its assets to buy more Bitcoin will keep it attractive.
According to Vitanza, the launch of a spot ETF would result in several tens of billions of dollars being invested in Bitcoin. He states, “We believe that while the premium in MicroStrategy stock will decrease, the increase in Bitcoin’s price will more than offset this.”
According to a Bloomberg survey of analysts, MicroStrategy is expected to announce third-quarter sales of $125.8 million and earnings before taxes of $25.3 million, which is similar to last year’s figures. Ebitda was at $8.2 million.
Hot Take: Uncertainty Surrounds MicroStrategy’s Premium
The impending approval of exchange-traded funds (ETFs) that invest directly in Bitcoin by the US Securities and Exchange Commission (SEC) has raised doubts about whether MicroStrategy’s shares can maintain their premium. The company itself has acknowledged this concern and warned that if its stock is seen as an alternative-to-Bitcoin investment vehicle and trades at a premium to its Bitcoin holdings, that premium may be eliminated, leading to a decline in share price.
Analyst Lance Vitanza estimates that MicroStrategy’s shares currently fetch a premium of around 30% due to its significant Bitcoin holdings. However, if the SEC approves ETFs, Vitanza predicts that the premium could decrease to 15-25%. Despite this potential decrease, Vitanza believes that MicroStrategy’s core software business and its ability to borrow against its assets to purchase more Bitcoin will continue to make it an attractive investment option.
The launch of ETFs is expected to drive up the price of Bitcoin, which would offset the decrease in the premium. Vitanza suggests that the investment of several tens of billions of dollars in Bitcoin through ETFs would contribute to this price surge. While uncertainties remain, analysts anticipate that MicroStrategy’s third-quarter sales and earnings will be similar to last year’s figures.
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