Should Investors Buy MSTR Shares?

Investors with a background in traditional markets are exploring multiple avenues to invest in cryptocurrencies beyond direct exchange purchases. One popular method is investing in MicroStrategy (MSTR) shares, particularly because Michael Saylor has transformed the company into an unofficial Bitcoin (BTC) ETF product. But does this strategy outperform others?

Investment Dynamics of MSTR Shares

Stock market enthusiasts looking to capitalize on Bitcoin’s growth have been buying MSTR shares since late 2020, prior to any ETF approvals. MicroStrategy’s significant BTC holdings mean that as Bitcoin’s value rises, so does the value of MSTR shares. This approach served investors well, with MSTR shares often outperforming the BTC spot price by 50%, and their price increasing almost tenfold since the strategy’s implementation.

On August 1, MicroStrategy announced a new corporate performance metric called “Bitcoin Yield,” which measures BTC per share. The company plans to increase this ratio by taking on more debt and issuing shares. Despite these efforts, the already high share price calls into question the sustainability of MSTR’s outperformance.

Future Prospects and Risks for MSTR

Benchmark fintech analyst Mark Palmer predicts that if BTC hits $150,000 by the end of 2025, MSTR shares will reach $2,150 ($215 after a 10-to-1 split). Currently trading at $132, even a 300% increase in BTC would only boost MSTR shares by about 60%. The company’s $3.7 billion debt adds another layer of risk, particularly if BTC prices drop sharply, potentially resulting in a negative premium for MSTR’s unofficial BTC ETF.

Key Considerations for Investors

– MSTR’s reliance on continuous BTC price increases and borrowing could be unsustainable.
– The company’s $3.7 billion debt is a significant risk factor.
– Investors might shift to actual BTC ETF products, affecting MSTR’s BTC reserves.

Moreover, the decline in MicroStrategy’s core business earnings and the emergence of leveraged products for MSTR add to the complexities and risks. These factors might push investors towards actual BTC ETFs offered by firms like BlackRock and Fidelity. Such a shift could compel MicroStrategy to liquidate its massive BTC reserves, impacting the market significantly.

As the last bull run’s collapse was driven by the crypto credit frenzy, the future could see Michael Saylor delivering a substantial blow to the markets if current trends continue.