Bitcoin (BTCUSD) has been under pressure in the last few months, but its prices have still more than doubled over the past year. Valued at $1.13 trillion, Bitcoin is the world’s largest cryptocurrency and the 10th largest asset by market cap overall.
Generally, Bitcoin prices rise in the 18 months following a “halving” event, which occurs every four years. The last halving event occurred in April 2024, meaning BTC prices should increase in the next 14 months.
So, let’s see if you should buy shares of MicroStrategy (MSTR), the largest institutional holder of Bitcoin, to benefit from outsized gains if BTC prices increase.
MicroStrategy is Bullish on Bitcoin
MicroStrategy (MSTR), valued at $23 billion by market cap, provides enterprise analytics software and services globally. Its platform aims to offer a robust analytics experience by delivering insights across multiple devices to users via visualization and reporting capabilities, mobility features, and custom applications.
In the last 10 years, MicroStrategy has reported a 2% decline in sales. However, the stock has returned 890% to shareholders since September 2014, primarily due to its exposure to Bitcoin.
Just before the crypto bull run began in 2020, MicroStrategy began investing heavily in Bitcoin. Armed with excess cash, the tech company first invested $250 million in Bitcoin, making it the first publicly traded company to gain exposure to the digital asset. MicroStrategy’s then-CEO, Michael Saylor, explained at the time that Bitcoin is a store of value and an attractive investment asset that offers long-term appreciation potential.
Today, the company holds 225,500 Bitcoins worth almost $13 billion. Moreover, it purchased these Bitcoins at an average price of $36,821. So, even if MicroStrategy liquidates its entire position right now, it would report roughly $5 billion in investment profits.
Barclays Joins the Bullish Camp on MSTR Stock
Last week, investment bank Barclays initiated coverage on MicroStrategy stock with an “Overweight” rating.
In an investor note, Barclays explained, “In essence, MSTR feels like a BTC index fund that is also capable of generating its own investment capital, such that investors not only gain exposure to the underlying BTC asset price, but also benefit from future self-funded accumulation.”
Each of the eight analysts covering MSTR stock has a "Strong Buy” rating.
The average stock price target is $198.45, indicating an upside potential of over 53% from current levels.
The Bear Case for MicroStrategy Stock
Yes, MicroStrategy’s massive bet has worked so far, as BTC prices have risen by 400% in the past four years. However, investing in MicroStrategy remains a high-risk proposition, due to the volatility associated with Bitcoin.
While MicroStrategy initially utilized its balance sheet cash to fund initial BTC purchases, it has since raised equity and debt capital to increase its position in the cryptocurrency. The company had a net cash balance of more than $500 million before its Bitcoin acquisition spree, but ended the June quarter with a net debt of almost $4 billion.
With an operating cash flow of just $5.2 million in the last six months, the company has reported a free cash outflow of $3 million in this period. It's evident that MicroStrategy does not generate enough cash to service its debt payments, and will have to rely on creative capital-raising practices if it continues to increase its BTC reserves.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
