MicroStrategy (MSTR) stock was among the best performers in 2024, hitting all-time highs in November last year with a 570% gain at the time. As the company with the largest Bitcoin (BTC) holdings in the world, this milestone can be largely attributed to a well-executed strategy to capitalize on the cryptocurrency hype. This is why I’m cautiously bullish on the stock. My caution stems from a more hawkish Federal Reserve in 2025, especially given MicroStrategy’s high correlation with Bitcoin prices, which makes its stock performance very rate-sensitive.
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With interest rates expected to fall more slowly this year than in 2024, Bitcoin sentiment could cool off a bit. That’s why, while I believe MSTR is a solid long-term play, 2025 may not be as bullish as 2024.
MicroStrategy’s Smart Bitcoin Strategy
Before diving into my more cautiously bullish outlook for 2025, let me first clarify MicroStrategy’s strategy. At the moment, no other company holds more Bitcoin than MicroStrategy, which has approximately 447,470 Bitcoins in its treasury, acquired at a cost of $62,503 per BTC, totaling around $45.3 billion in Bitcoin holdings.
MicroStrategy reached this massive Bitcoin stash by following a strategy where they use the cash generated from their data analysis software business (yes, it’s originally a software company) along with taking on debt and issuing equity to buy more Bitcoin. Most of its debt issuance is done through convertible bonds, capitalizing on the cryptocurrency’s high volatility, which allows investors to convert their holdings into MSTR stock at a later date. Thus, MicroStrategy found a way to raise funds without having to immediately dilute shareholders.
Evidently, this strategy only works well when Bitcoin prices are high. MicroStrategy has created a kind of loop, where higher Bitcoin prices boost equity value, and so the company can borrow additional funds to keep buying more and more Bitcoin. Over the past five years, investors who purchased MicroStrategy shares instead of Bitcoin saw gains of 1,930% versus 1,207% for those who purchased Bitcoin directly in the same period.
What to Expect from MSTR in 2025
While a positive outlook for MicroStrategy hinges on Bitcoin prices rising, there are still a few important factors to consider that call for caution, even if that surge happens.
Let’s begin by considering that MicroStrategy’s Bitcoin-buying strategy is highly rate-sensitive. In September 2024, the Fed cut rates by 0.50 percentage points to 5%, which helped fuel a strong rally in MSTR shares, as well as in the broader market and crypto prices. The trend continued positively in November when the Fed cut rates, but by 0.25 percentage points this time. However, the mood shifted in December, with the Fed cutting rates by another 0.25 points but signaled that there may be fewer cuts in 2025, which dampened the bullish momentum a bit.
Considering that tighter monetary policy in 2025 suggests interest rates will likely fall more slowly than expected, the opportunity cost of holding non-yielding assets like Bitcoin increases. With Bitcoin hovering close to its all-time highs, these rate changes could mean that the performance won’t be as strong as it was in 2024. This directly impacts MicroStrategy’s positive feedback loop strategy, where rising Bitcoin prices drive up its equity value.
As a result, we’ve seen MSTR stock drop nearly 25% from its peak in November 2024.
Is Now a “Buy the Dip” Opportunity for Long-Term MSTR Investors?
Even though I’m cautious about MicroStrategy’s performance in 2025, this could potentially be a “buy the dip” opportunity aiming for the long haul, especially given its recent pullback from all-time highs. One key factor to consider in assessing whether this is a good time to buy is MicroStrategy’s Net Asset Value (NAV) Premium.
To put it in context, NAV shows how the market is pricing MicroStrategy in relation to the real value of its assets. In this specific case, it helps to understand whether the market is paying a premium for the company’s Bitcoin or whether it is discounting the value of this position due to perceived risks or even volatility in the cryptocurrency market.
At the moment, MicroStrategy’s NAV stands at 1.9x, well below the 3.4x reached in November last year and equal to the levels of September 23, 2024. In other words, the market has clearly rejected sustaining a NAV above 3x. However, for long-term investors who believe Bitcoin will continue to rise, the broader thesis still holds strong and makes a lot of sense.
MicroStrategy owns a total of 2.13% of the Bitcoin global supply, and the company has never sold any Bitcoin at all. The reason for optimism in the long term stands at MicroStrategy doing an excellent job of using its Bitcoin as collateral, making sure that the Bitcoin that it owns can’t be liquidated. So, by selling convertible debt with 5-year maturities, MicroStrategy is repeatedly taking new debts and paying back its old debts in the future. It may never have to sell its Bitcoin again as long as fiat currencies exist. This is an extremely powerful position for a company to be in, especially a company that plans to be a Bitcoin bank in the future.
Is MSTR a Buy, According to Wall Street Analysts?
Despite a massive 470% gain over the past twelve months, Wall Street analysts remain overwhelmingly bullish on MicroStrategy. In fact, the average price target suggests there’s still substantial upside ahead.
Out of the eight analysts covering MSTR stock, all of them have issued a Buy recommendation. The average price target is $529.57, which, based on current prices, implies a potential upside of about 40%.
Conclusion
For Bitcoin enthusiasts, who typically have a higher tolerance for risk and volatility, owning shares in MSTR can make a lot of sense. The company has done an impressive job of converting debt and equity into Bitcoin holdings without immediately diluting shareholders. While I’m cautiously bullish on MSTR in the long run and believe this strategy will ultimately pay off, I think the short-term outlook for its stock may face some pressure this year.
The company’s strategy only works during periods of cryptocurrency hype. In my opinion, if the Fed signals that rate cuts will be less frequent in 2025, it could temper the excitement for MSTR resulting in a year not as explosive as 2024.
