The stock of MicroStrategy has seen a massive 337% surge in 2023, outclassing nearly all U.S. firms valued at $5 billion or above. This remarkable climb has been driven by the organization's investment in bitcoins, which it started accumulating in 2020. A great proportion of the company's worth now originates from bitcoin, even though its software industry is still part of its operations.
Founded almost 35 years ago, MicroStrategy was primarily a software company that flew under the radar for much of its history. Fast forward to 2023, and its stock has skyrocketed 337%, making it one of the most remarkable performers among U.S. companies worth $5 billion or more. This impressive rally has outperformed technology peers such as Nvidia and Meta, whose stocks have surged by 234% and 194%, respectively.While the company's success can largely be attributed to its decision to invest in Bitcoin back in mid-2020, it has not diverted its focus away from software growth. According to Joseph Vafi from Canaccord Genuity, who has a buy recommendation for the stock, "It's really Bitcoin, but all the other stuff is healthy and doing a good job, they're not neglecting it. It's doing well, it's leading software in its sector. But it's basically something we don't have to worry about".Currently, MicroStrategy's market cap is valued at $8.5 billion, almost 90% of which is attributed to its Bitcoin holdings. Consequently, during Bitcoin's 64% plunge in 2022, MicroStrategy also felt the pinch, as its stock price decreased by 74%. Although it has enjoyed a surge in 2021, the prices are still below the highs reached in the previous year. The Bitcoin strategy was first unveiled in July 2020, when the company declared that it would be allocating a portion of its capital towards digital assets. It is worth noting that, prior to this move, the company's market capitalization was a mere $1.1 billion, and its annual revenue was just under $500 million.
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At the midpoint of 2020, MicroStrategy had about $530 million in cash and short-term investments on its balance sheet, which Michael Saylor, the then-CEO, wanted to put to use. After considering various options, such as equities, precious metals, and bitcoin, Saylor decided to make a move into bitcoin, explaining that its qualities made it akin to "digital gold" - "harder, smarter, stronger, and faster than gold." This gave investors a way to take part in bitcoin without having to buy coins directly. As of now, Saylor - who is now Executive Chairman - believes that the current bull market for bitcoin will continue beyond 2021 and that the world should be allocating more funds to this digital asset. To that end, he put out a book last year called "What is Money?"
MicroStrategy is not alone in opting to put some of its cash reserve into alternative investments, and it is unlikely to be the last firm to seek methods for generating greater returns on this money. Earlier this month, GameStop authorized the utilization of company funds by its CEO Ryan Cohen, who gained recognition as an investor, to acquire stock. However, MicroStrategy is distinctive as it has been mostly viewed as a bitcoin proprietor. Michael Saylor is considered a visionary, as he identified this as an option to exploit a cash heavy and successful balance sheet, and commence a bitcoin treasury exploration, which has been a successful endeavour.
In examining why MicroStrategy's stock has risen victoriously in comparison to bitcoin in the current year, Vafi described it as a ‘scarcity premium’, as there are few ways for capital investors to access the market. That could be altered in the coming year, with an expected outburst of bitcoin exchange-traded funds (ETFs). Currently, these ETFs are composed of contracts to buy and sell bitcoin and not the cryptocurrency itself, and investors may invest in Grayscale Bitcoin Trust, which buys and sells bitcoin on the open market instead of on a key exchange. Grayscale sued the SEC last year after the regulator declined its application for a spot bitcoin ETF, citing investor protection as a concern, yet an appeals court decided in favour of Grayscale in August this year, something which many in the sector believed would open the way for future ETFs. Investment associations like BlackRock, Fidelity and Invesco have petitioned the SEC to create their own products. Vafi stated that the possibility of competition marginally affects MicroStrategy, and it is a ‘very high-class problem’ as bitcoin prices could increase significantly if a bitcoin ETF is approved.
MicroStrategy proposes more than just speculation on bitcoin's direction. While ETFs are passively managed, MicroStrategy has the option of using its bitcoin holdings to create business opportunities, like using them as collateral. MicroStrategy commented that it is encouraged by the expanding compliance environment around bitcoin and the escalation in institutional demand.
Additionally, MicroStrategy's software business is a plus, according to Saylor’s remarks on the recent earnings call. This generates cash flow which the company may use to purchase more bitcoin. Unfortunately, investors predicting against MicroStrategy have had a poor year. Crypto stock short sellers have lost $6.1 billion in 2021, with the majority of losses in Coinbase and MicroStrategy.
Despite this, MicroStrategy has no plans of suspending its bitcoin purchases and in November, they bought 16,130 bitcoins at a worth of $593 million, notwithstanding bitcoin's current price trend. This is more bitcoin than they bought in any quarter since the start of 2021.
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