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I like cheap shares. I also like the risk/reward ratio offered by cryptocurrency. This US company’s war chest of 140,000 Bitcoins offers me an excellent entry on both.
MicroStrategy (NASDAQ: MSTR) is a monochrome company with a colourful flourish. While market saturation has hampered growth, the IT consulting firm has produced reliable annual revenues of ~$500m for the past 12 years along with consistent profits.
During the pandemic, founder and CEO Michael Saylor sought to protect the company’s cash reserves from the increasingly inflationary environment. In November 2020, Saylor used half of MicroStrategy’s existing cash to purchase 21,454 Bitcoins. The tech-favourable conditions of the market at the time – which included Elon Musk’s high-profile purchase of $1.5bn of Bitcoin through Tesla – caused MicroStrategy’s stock to soar, rising 600% from $184 to $1,315 in just three months.
Since then, sentiment towards MicroStrategy and Bitcoin has cooled. Prices have dropped to $294 and $28,000 respectively, which equates to a stock-to-Bitcoin ratio of 0.0107. In contrast, this same ratio was at 0.0274 in February 2021 during MicroStrategy’s peak.
This figure is significant, as the price of MicroStrategy stock moves in tandem with the underlying price of its crypto asset: if the price of Bitcoin rises or falls, MicroStrategy will follow the same trend.
Therefore, any bet on MicroStrategy is a bet on two things: the price of Bitcoin and the relative price of one MicroStrategy share vs. one Bitcoin.
I think that both could be the case, and that MicroStrategy offers me an excellent opportunity to buy cheap shares and capitalise on exposure to a crypto asset that is expected to see strong gains in the medium term.
Whilst the price of Bitcoin has risen in 2023, the next significant milestone will not arrive until sometime in April or May 2024 with its next ‘halving’ — a technical event that occurs approximately every four years upon the creation (or ‘mining’) of the 210,000th block in its blockchain.
The Bitcoin network is supported by a decentralised network of miners that maintain the blockchain’s integrity in return for mining rewards. A halving causes future rewards to become ‘halved’: in the next instance, from 6.25 BTC per block to 3.125. This decrease in supply creates a deliberate increase in scarcity of the asset, something that has historically triggered Bitcoin’s previous three bull runs.
The last three halvings, in November 2012, July 2016, and May 2020, saw 12-month returns of 10,000%, 700%, and 300% respectively. Whilst the scales of return have decreased at each four-year interval, crypto-enthusiasts are still hoping for a three-figure percentage increase from 2024-2025.
However, with high returns comes high risk. Cryptocurrencies are considered some of the most volatile and insecure assets available, and all investors — MicroStrategy included — should proceed with caution.
This level of market hesitancy around Bitcoin exposure underpins the rationale for why MicroStrategy shares are currently so cheap. I hold shares in MicroStrategy since I believe I have the appropriate appetite for risk over the long term.
The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of investment advice. Bitcoin and other cryptocurrencies are highly speculative and volatile assets, which carry several risks, including the total loss of any monies invested. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
