MicroStrategy, a company that buys Bitcoin with money provided by investors, has returned an astonishing 3,000 percent since August 2020. But is this remarkable performance sustainable? MicroStrategy’s strategy of using “intelligent leverage” to borrow money and amass a strategic reserve of Bitcoin raises significant risks for investors.
Investors may be holding the stock indirectly through diversified funds managed by Vanguard, Fidelity, BlackRock, or Morgan Stanley. However, with nearly 74 percent losses in 2022 due to the collapse of the FTX exchange, it’s essential to understand MicroStrategy’s current situation. The company has overcome this setback and achieved remarkable growth, but it may not be a sustainable future.
The risks associated with investing in MicroStrategy are substantial. The value of Bitcoin itself is questioned by many skeptics, and if its appeal wanes, investors will be hurt. Furthermore, the company’s use of leverage to fund more Bitcoin purchases creates lengthy series of substantive legal and financial risks.
President-elect Donald J. Trump and his supporters are embracing cryptocurrencies, which may lead to lighter regulation in the next administration. This could result in more windfalls for crypto entrepreneurs, but also put unsuspecting investors at risk if Bitcoin falter again.
It’s essential to consider cryptocurrency as a speculative investment and understand its risks before adding it to your diversified portfolio. MicroStrategy serves as a warning that Bitcoin is already creeping into traditional portfolios, including retirement savings. As part of diversified portfolios, it may be easy to overlook, but with a total stock market value exceeding $90 billion, it’s crucial to take notice.
Source: https://www.nytimes.com/2024/12/06/business/bitcoin-microstrategy-retirement-funds.html