MicroStrategy CEO Michael Saylor speaks at the Bitcoin 2021 Convention, a cryptocurrency conference, held at the Mana Convention Center in Wynwood, Miami, Florida on June 4, 2021.
Joe Radle | Getty Images
micro strategy was founded nearly 35 years ago, and for much of its history existed as a little-known software company focused on business intelligence.
But in 2023, its stock price soared 337%, making it one of the biggest gainers in the U.S. among companies valued at $5 billion or more, making it the top company. Nvidia’s 234% recovered; meta Soaring 194%.
Unlike high-tech companies, which rely on increasing revenue and increasing market share to boost stock prices; MicroStrategy Appeal to investors almost exclusively Bitcoin. The company started buying the cryptocurrency in mid-2020 and had amassed about 174,530 bitcoins, worth about $7.65 billion, as of late Friday.
Wall Street was so captivated by the story that its stock price has increased about twice as much as Bitcoin this year.
“This is just Bitcoin,” said Canaccord Genuity analyst Joseph Buffy, who recommends the stock as a buy. “Everything else is healthy and doing a good job. It’s not like they’re ignoring it. It’s doing well, it’s leading the software in its field. But it’s basically It’s not something we need to worry about.”
MicroStrategy has a market capitalization of $8.5 billion, meaning 90% of its value is tied directly to its Bitcoin holdings. When Bitcoin plummets or spikes, MicroStrategy also plummets or spikes. In 2022, MicroStrategy fell 74% due to Bitcoin’s 64% decline. Even after this year’s crash, MicroStrategy’s stock price is still below where it was trading at its 2021 highs during the cryptocurrency’s peak.
The Bitcoin strategy dates back to July 2020, when the company announced it would begin investing some of its cash in alternative assets, including digital currencies. At the time, MicroStrategy had a market capitalization of about $1.1 billion and was based on a software business that had been shrinking since 2015. Annual revenue was just under $500 million, and profits were minimal.
At mid-year 2020, MicroStrategy had more than $530 million in cash and short-term investments on its balance sheet. Co-founder Michael Saylor, who was CEO at the time, saw that money was essentially sitting idle due to low interest rates and wanted to take advantage of it.
From there, they needed to decide whether stocks, precious metals, or Bitcoin would be the best use for their funds.
“The reason we decided to buy Bitcoin is because Bitcoin represents a form of digital gold,” Saylor said during the company’s first earnings call after announcing its strategy. “It’s harder than gold. It’s smarter, stronger, and faster than gold.”
Saylor’s decision creates a way for investors to acquire shares in Bitcoin by purchasing shares on a regular basis, rather than by purchasing Bitcoin directly.sailor, who Resigns as CEO He, who became executive chairman last year, told CNBC’s Morgan Brennan last week that he expects the Bitcoin bull market to continue into next year. He said 99.9% of the world’s capital is invested in real estate, stocks, bonds and commodities, with only 0.1% allocated to Bitcoin.
“As people become more educated about digital assets, they realize that they should be allocating more and more of their capital to this digital asset, and that percentage is moving from 0.1% to 0.2%,” Saylor said. Stated. Last year, I wrote a book about Bitcoin titled “What is Money?”
Innovative ways to use cash
MicroStrategy wasn’t the first company to put some of its cash pile into alternative investments, and it won’t be the last to find ways to generate big returns from that money. Early this month, GameStop has given CEO Ryan Cohen, who has achieved something of a celebrity status as an investor, permission to use the company’s cash to buy stock.
However, MicroStrategy is unique in that it is considered almost exclusively a Bitcoin holding company.
“Michael Saylor is kind of a visionary,” Vuffy said. “He saw this as an opportunity to really leverage the fact that they had a lot of cash and a healthy balance sheet and start this Bitcoin Treasury experiment. And it worked, So they continue on that path.”
In analyzing why MicroStrategy’s stock has outperformed Bitcoin so dramatically this year, Buffy calls this a “scarcity premium” due to limited ways for stock investors to tap into the market. expressed.
That could change in the new year, as investors brace for a surge in Bitcoin exchange-traded funds (ETFs). Bitcoin futures ETFs currently exist, which consist of contracts to buy and sell Bitcoin, but not the cryptocurrency itself.And investors can buy into that. grayscale bitcoin trusta fund that owns Bitcoin and trades over-the-counter rather than on major exchanges.
Grayscale sued the SEC last year after regulators rejected its application to create a spot Bitcoin ETF, citing investor protection concerns. In August, the Court of Appeals ruled in Grayscale’s favor, a decision seen by many in the industry as paving the way for new ETFs. Asset managers such as BlackRock, Fidelity, and Invesco have filed SEC filings for their products.
Vafi said potential competition poses little threat to MicroStrategy.
“I would call this a somewhat advanced problem for now,” he said. “If a Bitcoin ETF is approved, the price of Bitcoin will likely rise and could rise significantly.”
MicroStrategy offers more than just bets on the direction of Bitcoin. While ETFs are passively managed, MicroStrategy has the option to leverage your Bitcoin holdings and use them, for example, as collateral to create more business opportunities.
“MicroStrategy is encouraged by the continued maturation of the regulatory environment surrounding Bitcoin and the increased demand from institutional investors we are seeing today,” said the company’s financial and investor relations spokesperson. Vice President Shirish Jajodia told CNBC via email. “We believe it will have a positive impact on Bitcoin adoption by mainstream investors as well as businesses.”
MicroStrategy’s software business is also a big plus, Saylor said during the company’s latest earnings call. He said this is a proven cash flow generator and will allow the company to buy more Bitcoin.
It’s been a tough year for many investors betting on MicroStrategy.
As of early December, short sellers of crypto stocks had fallen by $6.1 billion over the year, and the rally continues. coinbase According to S3 Partners, they are causing the most damage. The company said that in the first three quarters of this year, short sellers spent $2.19 billion to cover their bets, with the majority of their purchases being in Coinbase and MicroStrategy.
Short sellers have lost $4 billion on Coinbase and $1.4 billion on MicroStrategy this year, according to data provided by S3 last week. According to S3, approximately 23% of MicroStrategy shares publicly traded are sold short, the second-highest level among crypto companies after Bitcoin miners. marathon digital. The average for US stocks is 5%.
MicroStrategy shows no signs of slowing down when it comes to PU Bitcoin snaps.company Said The company purchased approximately 16,130 Bitcoins in November for more than $593 million, even as prices continued to rise. This is more Bitcoin than was purchased in any quarter since the first three months of 2021.
—CNBC’s Kate Dore contributed to this report
clock: Bitcoin rebounds above $43,000
