MicroStrategy Stock Is Up 400% This Year—What You Need to Know About the Bitcoin Proxy | Global News Avenue

MicroStrategy (Magnetic transmission technology) was an obscure software company until it started making massive bets on Bitcoin (Bitcoin USD).

The company’s shares have risen more than 400% since the start of 2024, and Bitcoin has soared to an all-time high above $100,000 amid optimism that the digital currency will benefit from the incoming Trump administration and a potentially pro-crypto Congress. The policies introduced are in place.

Before this year’s rally, most investors knew little about MicroStrategy, but now it’s moving further into the spotlight as it Join the Nasdaq 100 Indexwhich includes many of the world’s largest and most actively traded companies, including Nvidia (NVDA), apple(AAPL) and Tesla (Tesla). Therefore, exchange-traded funds that track the index, such as the Invesco QQQ Trust (QQ), must adjust their portfolios to incorporate MicroStrategy.

Analysts are optimistic that there is more room for MicroStrategy shares to rise given the positive outlook for Bitcoin and the strategy adopted by the company. Leverage Build up its Bitcoin holdings. However, some investors say the sharp rise in share prices is unsustainable, in part because of leverage.

MicroStrategy stock rises far more than Bitcoin

MicroStrategy’s stock generally mirrors Bitcoin’s directional moves as the company has increased its stake in the cryptocurrency. However, the strategy of using leverage has translated into share price gains that far exceed those of Bitcoin, which is up about 125% since the beginning of the year.

The company has not turned a profit in any quarter this year but purchased its first Bitcoins in 2020, when the currency was trading near $11,000. Just seven years ago, then-CEO Michael Saylor said that Bitcoin’s “days are numbered.”

in the most recent CNBC Current chairman Saylor said in an interview that MicroStrategy is a Bitcoin vault operating company. The company has purchased the cryptocurrency 44 times since 2020 at a price of Total 439,000 BTC in its books. This is more than 2% 21 million Bitcoins This is here to stay, making MicroStrategy the second-largest corporate holder of assets behind BlackRock’s iShares Bitcoin Trust (it will go).

The company measures the success of its Bitcoin investments using a metric called Bitcoin Return, which roughly translates to the company’s change in Bitcoin ownership per outstanding share.

MicroStrategy held 189,150 Bitcoins at the end of last year, assuming a diluted outstanding share count of 207,636, a ratio of 0.91. As of December 15, the company’s Bitcoin holdings surged to 439,000 BTC, with 279,510 shares outstanding, giving the company a ratio of 1.57. Therefore, the year-over-year percentage change between the two ratios, or Bitcoin returns, is 72.4%.

MicroStrategy said in a regulatory filing this month that the yield “can be used to supplement investors’ understanding of a company’s decision to fund purchases of Bitcoin through the issuance of additional shares of common stock or instruments convertible into common stock.”

“Bitcoin’s Leverage Game”

The company issues equity or zero coupon debt Backed by a small amount of existing Bitcoin reserves for an easy way to buy large amounts of Bitcoin arbitrage. The company plans to use these methods to raise $42 billion over three years, the company announced in October, and is working toward that goal.

The company is increasingly relying on issuing stock to buy Bitcoin, but when it chooses convertible debtbuyers of the debt have the option to convert it into MicroStrategy stock at a certain price, almost like call option.

“When we do this with debt, we issue $3 billion of debt backed by $600 million of Bitcoin that matures in five years and we pay 0% interest. We buy $3 billion of Bitcoin currency, we made $2.4 billion in arbitrage but over the next five years we doubled or quadrupled our investment because the assets we bought appreciated faster than the S&P,” Thaler told CNBC.

Bernstein analysts said, “MicroStrategy presents a leveraged play on Bitcoin.” Bernstein recently raised its price target on the stock to $600 from the previous price of $290. The stock is currently trading around $360.

Analysts say the longer debt maturity gives the company some cushion against immediate repayments or Bitcoin price fluctuations. Additionally, Benstein said that even if MicroStrategy had to issue shares to satisfy its convertible debt obligations, those would have a limited impact on diluting the company’s equity.

Some say the stock is about to pull back

Not everyone is convinced MicroStrategy’s performance is sustainable.

Take short seller Citron Research, which remains bullish on Bitcoin but opened a short position on MicroStrategy as a hedge, essentially betting that the stock price would fall.

Short-seller Citron Research said in a November

Mike Novogratz, CEO of Galaxy Digital CNBC Lately, he expects Bitcoin-related stocks like MicroStrategy to correct more sharply than the cryptocurrency itself due to leverage.