In a remarkable development, MicroStrategy, the largest publicly traded corporate holder of Bitcoin, has experienced a stunning 94% surge in its stock year-to-date (YTD). This surge is largely driven by Bitcoin’s impressive rally, pushing its value above $97,000. With a substantial reserve of 331,200 Bitcoin on its balance sheet, valued at approximately $32 billion, MicroStrategy now boasts an impressive $15.51 billion in unrealized gains.
The rise in MicroStrategy’s stock underscores the increasing integration of cryptocurrencies into traditional finance, reflecting a growing investor appetite for Bitcoin-backed equities. Notably, MicroStrategy’s year-to-date performance has outshone major tech stocks, surpassing Apple by 21%, Amazon by 24%, and Tesla by 6%.
Despite its robust performance, MicroStrategy’s heavy reliance on Bitcoin does expose the company to market volatility. A significant drop in Bitcoin’s price could quickly impact the company’s valuation and stock price, presenting potential risks for investors.
Is MicroStrategy Overvalued?
The question of whether MicroStrategy is overvalued has sparked diverse opinions in the market. Charles Edwards, the founder of Capriole Investments, offers a unique perspective. In a recent post, Edwards argued that MicroStrategy is not overvalued. He pointed out that, with a $106 billion market cap and a 70% premium to its Bitcoin Net Asset Value (NAV), the company could not be considered undervalued. Edwards emphasized that as the current bull run continues, even if it doesn’t mirror the previous Bitcoin cycle, MicroStrategy still has substantial ‘runway’ for growth, especially if CEO Michael Saylor maintains his purchasing strategy.
The Key Requirement
Edwards highlighted a critical requirement for this growth trajectory: Saylor must acquire Bitcoin more aggressively as their NAV premium widens. The firm recently announced a $42 billion acquisition strategy, called the 21/21 plan. However, Edwards cautioned that this plan might be ineffective since the market has already accounted for it. He suggested that a more ambitious target of over $50 billion in acquisitions over the next year would be necessary.
This might seem daunting, but Edwards noted that Saylor has already raised $9.6 billion in just nine days. As Bitcoin’s market cap approaches $2 trillion, there’s a vast audience of bond traders who are unable to invest in Bitcoin due to their mandates. This represents a significant opportunity for MicroStrategy to capture a portion of this market.
Saylor Needs To Raise More Capital
The U.S. bond market, valued at $50 trillion, dwarfs Bitcoin’s market cap by over 25 times. Edwards highlighted that MicroStrategy is one of the few vehicles that offer bond traders exposure to Bitcoin. Given that MicroStrategy’s issues are consistently oversubscribed, there is immense demand for these high-performing bonds.
As the current Bitcoin bull cycle continues to unfold, it is conceivable to see $50 billion being allocated to MicroStrategy to capture some of this upside. Additionally, the potential for capital-raising through equity issues remains significant. Edwards believes that Saylor needs to be proactive over the next year in raising more capital to actively close the premium. If successful, there is substantial potential for MicroStrategy’s equity to grow even further.
In conclusion, whether MicroStrategy is overvalued remains a topic of debate. However, with a robust strategy in place and the potential for significant capital influx, the company stands as a prominent player in the evolving landscape of Bitcoin-backed equities. Investors should keep a keen eye on MicroStrategy’s movements in the market as it continues to navigate the volatile world of cryptocurrency investments.
