MicroStrategy, a 35-year-old software company valued at $91 billion, has become one of the hottest stocks on the market. Its valuation is largely driven by its investment in bitcoin, with executive chairman Michael Saylor betting big on the cryptocurrency’s potential. The company’s strategy has been met with skepticism and excitement, as investors seek to tap into the rising star of the digital asset.
At its core, MicroStrategy is not a traditional software company. Instead, it uses its business intelligence product as a vehicle to buy and hold bitcoin. This approach has proven lucrative, with the company’s shares delivering a 584% return in the last year alone. However, this success comes with significant risks, including market volatility and potential losses if the value of bitcoin plummets.
To mitigate these risks, MicroStrategy has issued interest-free bonds that offer investors hedged exposure to bitcoin. These bonds have proven popular among return-hungry fixed-income investors, who can potentially score high returns if the company’s shares rise in value. The company’s decision to issue such bonds is seen as a brilliant move, allowing it to raise capital while also increasing its bitcoin holdings.
The success of MicroStrategy’s strategy has caught the attention of crypto skeptics and enthusiasts alike. While some have expressed concerns about the company’s approach, many believe that Saylor’s efforts will pay off in the long term. As one expert noted, “When they’re selling the shares for 1.5x or 2x or 2.5x the net asset value of the bitcoin that the company holds, they’re basically selling $1 bills for $3.” This approach has been described as “accretive dilution,” where issuing new shares helps the company buy more bitcoin, thereby increasing its value.
As investors consider taking a closer look at MicroStrategy, it’s essential to remember that this is a high-risk, high-reward investment. With the company’s shares trading one of the most volatile in markets, there’s always a chance of significant losses if the market turns sour. However, for those willing to take on the risk, the potential rewards could be substantial.
Source: https://www.businessinsider.com/microstrategy-bitcoin-100000-michael-saylor-crypto-markets-investing-strategy-analysis-2024-12