MicroStrategy’s Bold Bet on Bitcoin: 3 Key Points

To be absolutely frank, the world of Cryptocurrency can be mysterious and even illogical to many of us. This means that even the most experienced investors can find it difficult to understand and decide when and which crypto coin to buy. This is an extremely volatile sector and, most of the time, unpredictable.

Enter MicroStrategy (MSTR) stock, a company devoted to Bitcoin that consistently outperformed Bitcoin and delivered exceptional returns. While Bitcoin is nearing its all-time high of $100,000 after surging more than 162% over the past twelve months, MicroStrategy has achieved an even more impressive performance, with its stock jumping 634% in the same period. MicroStrategy’s appeal lies in more than just its massive Bitcoin holdings, which account for approximately 1.3% of all Bitcoin in circulation.

Since 2020, the company has executed a unique strategy to leverage its balance sheet through bond issuances. This approach amplifies profits during bullish periods for Bitcoin, making MSTR an attractive, albeit high-risk, option for investors seeking to jump on the bandwagon of cryptocurrency growth. This strategy complements the views of its Executive Chairman, Michael Saylor, a devoted Bitcoin advocate.

Currently, MicroStrategy is the largest corporate holder of Bitcoin, with approximately 331,200 bitcoins in its treasury. These were acquired at a total cost of $16.5 billion, translating to an average price of around $49,874 per Bitcoin, far less than its actual value of $95,775.52 as of writing.

If you wish to read more on MicroStrategy, you can read what Bernard Zambonin, our writer at Tipranks, has written about the company.

For now, though, let’s examine and understand, through three key points, the mindset behind this strategy:

• MSTR Outpacing Bitcoin with Superior Returns: MicroStrategy’s ability to capitalize on Bitcoin gains is partly due to its exceptional timing in executing its buying strategy in a volatile cryptocurrency environment. Notably, investors who purchased MicroStrategy shares instead of Bitcoin saw gains of 2,521% over five years, compared to 1,156% for Bitcoin.

• Banking on Bitcoin To understand the company’s strategy, you can look at its use of convertible bonds linked to Bitcoin, similar to traditional banks’ operations. It raises funds by issuing convertible bonds, which can later be converted into company shares. These bonds are issued at low or zero interest rates, minimizing borrowing costs. The funds raised from these bonds are then used to purchase Bitcoin. Like a bank that raises funds at low interest rates, MicroStrategy does the same but focuses strictly on Bitcoin.

• A Risky Strategy with High Risk and Reward: MicroStrategy has been engaging in this strategy since 2020 under the leadership of CEO Michael Saylor. However, this approach carries significant risks. While it has proven fruitful when cryptocurrency is flying high, it has faced profound challenges during downturns. For instance, when crypto lingered from 2021 to early 2023, MSTR shares plummeted by as much as 86%, reaching lows of under $15 per share, while Bitcoin was trading below $17,000.

What Is the Price Target for MSTR?

On Wall Street, MSTR is considered a Strong Buy with eight Buys. The price target for MSTR stock is $494, reflecting a 27.49% upside.

See more MSTR analyst ratings

Last Take

MicroStrategy’s strategy involves leveraging Bitcoin’s volatility and potential for high returns through strategic debt issuance and timing. The company can be a nice solution for investors who wish to participate in the hyped Cryptocurrency play but don’t know the first thing about it. MSTR’s approach, while risky, has allowed the company to outperform Bitcoin and deliver substantial returns to its investors. It doesn’t mean the company isn’t exposed to downturns, but even when we include its downward trend until 2023, MSTR still managed to climb almost 467% in the last three years.