Should Investors Buy MicroStrategy Stock (MSTR) Instead of Bitcoin?

For investors seeking exposure to Bitcoin (BTC), buying MicroStrategy (MSTR) stock can be a compelling alternative. My bullish outlook on MSTR comes from the company’s ability to continually outperform Bitcoin itself and deliver exceptional returns for those willing to tolerate the higher risk and volatility.

As Bitcoin approaches its all-time high of $100,000 after rising more than 162% over the past twelve months, MicroStrategy has delivered an even more impressive performance, increasing its stock by 711% over the same period.

MicroStrategy’s appeal lies not only in its huge Bitcoin holdings, which account for about 1.3% of all Bitcoins in circulation. Since 2020, the company has pursued a unique strategy of leveraging its balance sheet through bond issuances, similar to how banks generate returns. This approach amplifies profits during Bitcoin’s bullish periods, making MSTR an attractive, albeit high-risk, vehicle for investors looking to profit from the cryptocurrency’s growth.

In this article, I will examine MicroStrategy’s path to becoming a Bitcoin titan and whether buying its shares now is a better investment than buying Bitcoin itself.

MicroStrategy: Transforming into a Bitcoin vault

MicroStrategy’s bullish investing thesis is often viewed as a leveraged bet on the price of Bitcoin. Originally a software company, MicroStrategy has significantly expanded its balance sheet since 2020 through aggressive Bitcoin acquisitions. This strategy is in line with the views of its CEO Michael Saylor, a staunch Bitcoin supporter.

The company’s Bitcoin purchasing strategy primarily involved debt issuance, primarily in the form of convertible bonds, taking advantage of the cryptocurrency’s high volatility. These bonds allow investors to convert their shares into MicroStrategy shares at a later date. This approach allows the company to raise funds without immediately diluting its existing shareholders. When the price of Bitcoin rises, MicroStrategy benefits from a positive feedback loop: higher Bitcoin prices increase the equity value, allowing the company to raise additional funds and buy even more Bitcoin.

The most recent bond offering took place on November 20, when MicroStrategy successfully priced a $2.6 billion offering, an increase from the originally planned $1.75 billion.

Currently, MicroStrategy is the largest corporate holder of Bitcoin, with approximately 331,200 Bitcoins in its cash balance. These were acquired for a total price of $16.5 billion, which corresponds to an average purchase price of around $49,874 per Bitcoin.

MSTR as a leveraged play on Bitcoin with superior returns

My bullish outlook on MicroStrategy’s ability to capitalize on Bitcoin gains is due in part to the company’s exceptional timing in executing its buying strategy amid the cryptocurrency’s volatility. Notably, investors who bought MicroStrategy shares instead of Bitcoin saw a gain of 2,521% versus 1,156% for Bitcoin over a five-year period.

MicroStrategy’s net asset value (NAV) in Bitcoin is 2.8x. This means that buying MicroStrategy shares involves paying a premium of 2.8 times the value of Bitcoin. This premium reflects the added value of the company’s strategic approach and its ability to take advantage of Bitcoin’s price fluctuations for higher returns.

MicroStrategy’s unique approach: bet on Bitcoin

Another positive aspect of MicroStrategy’s strategy is the use of convertible bonds in conjunction with Bitcoin, drawing parallels to traditional banking practices with different contexts and objectives. Similar to how banks raise funds at low interest rates – through deposits or bonds – and reinvest in assets that offer higher returns, MicroStrategy does the same but focuses exclusively on Bitcoin. The company has issued debt to acquire Bitcoin, including bonds with a 0% interest rate.

This reflects investors’ willingness to forego immediate interest payments in exchange for the opportunity to convert the bonds into equity. Essentially, the potential for capital appreciation through the conversion feature makes up for the lack of interest income.

The key to the success of this strategy is increasing the value of Bitcoin beyond the cost of debt. When Bitcoin rises, MicroStrategy benefits disproportionately due to the leverage embedded in its approach, which has a compounding effect on shareholder returns.

A breakthrough strategy with high risk and reward

MicroStrategy has been at the forefront of this strategy since 2020 under the leadership of CEO Michael Saylor. However, the investment thesis involves significant risks. While the strategy has proven lucrative during cryptocurrency bull markets, it has faced significant challenges during downturns.

For example, during the crypto winter from early 2021 to early 2023, high inflation and rising interest rates increased the cost of issuing and refinancing debt securities. MSTR shares plunged as much as 86%, hitting lows of under $15 per share, while Bitcoin traded below $17,000.

Comparison of MSTR and Bitcoin performance

Finally, if we look at MicroStrategy’s performance since it began its strategic Bitcoin acquisition strategy in 2020, the results are impressive. From 2020 to 2024, MSTR delivered an annual return of 80% with a standard deviation of 112%, although there were maximum drawdowns of 81%. In comparison, Bitcoin has produced an annual return of 60% over the same period, with a standard deviation of 69% and a maximum drawdown of 73%.

Although MSTR’s returns come with significantly higher volatility, they have proven to be superior to those of Bitcoin in the short and long term. This outperformance depends on MicroStrategy’s ability to effectively execute its strategy and the long-term appreciation of Bitcoin.

Is MSTR a good buy?

At TipRanks, MSTR stock is rated a Strong Buy considering eight out of eight Wall Street analysts covering the stock have a bullish stance. The average price target is $357.38, representing a downside potential of -15.29% from the last share price of $397.28.

See more MSTR analyst ratings

Diploma

MicroStrategy has shown that its leveraged Bitcoin approach can generate above-average returns compared to owning Bitcoin directly, albeit with significantly higher risk. While past performance is no guarantee of future results, MSTR’s track record suggests that it has been a better investment than Bitcoin alone for those willing to accept the volatility and risk associated with its strategy .

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