MicroStrategy has often been viewed as a go-to option for those looking to gain exposure to Bitcoin, frequently described as a leveraged Bitcoin play or a synthetic call option. However, according to crypto expert Alex Kolicich, there are significant reasons to reconsider this perspective. Let’s delve into his insights and explore why MicroStrategy might not be the best option for Bitcoin enthusiasts.
Prime Misconception About MicroStrategy (MSTR)
The current price of MicroStrategy’s shares stands at $386.42, with the market witnessing a notable increase of over 10.96% in the past 30 days. Despite this surge, Kolicich argues that MicroStrategy is an overpriced entry point into the Bitcoin realm, trading at a staggering 140% premium to its Net Asset Value (NAV). He emphasizes that MicroStrategy is neither a “synthetic call” on Bitcoin nor an effective leveraged method for purchasing Bitcoin. It is, according to him, a poorly structured and tax-inefficient fund.
Bitcoin Exposure and Pricing Issues
MicroStrategy holds a substantial amount of Bitcoin, totaling at least 439,002 BTC, which is valued at approximately $45,782,223,524. This accounts for roughly 2.09% of the entire Bitcoin supply. However, this translates to only about $177.60 in NAV per share. Kolicich highlights that for every dollar spent on MicroStrategy, investors receive less than $0.45 in actual Bitcoin exposure. He argues that instead of providing more Bitcoin exposure, MicroStrategy offers less than what could be obtained by purchasing Bitcoin directly.
MicroStrategy Is Not Leveraged or Long Volatility
Kolicich further explains that when MicroStrategy issues convertible debt, it effectively shorts volatility by selling a bond coupled with a call option. Unlike traditional call options, MicroStrategy does not offer leverage on invested funds, which is a significant consideration for investors looking to maximize their Bitcoin exposure.
Shareholder Dilution
As Bitcoin prices rise, the convertible debt issued by MicroStrategy can lead to the dilution of shareholders’ Bitcoin exposure. This dilution effect is a critical factor for investors to consider, as it impacts the overall value of their investment in MicroStrategy.
Structural Issues with MicroStrategy
MicroStrategy’s status as a C-Corporation introduces additional structural complexities. Unlike Exchange-Traded Funds (ETFs), C-Corps are subject to double taxation, encompassing both corporate and personal taxes. This tax inefficiency can significantly impact the returns for investors, making MicroStrategy a less attractive option for those seeking efficient Bitcoin exposure.
Better Alternatives for Bitcoin Exposure
For investors seeking more effective and cost-efficient ways to gain Bitcoin exposure, alternatives such as BITX present a compelling option. BITX offers 2x leveraged Bitcoin exposure without the premium pricing associated with MicroStrategy. These products provide a more direct and profitable avenue for investing in Bitcoin.
In conclusion, before investing in MicroStrategy, investors should carefully assess its tax inefficiency, premium valuation, and limited Bitcoin exposure. Considering alternatives like BITX could offer smarter investment strategies, allowing for better returns and a more direct connection to the Bitcoin market.
