Microstrategy (MSTR) is a publicly traded company on the NASDAQ. It’s fairly well known as a software company helping provide data driven insights to corporations, but it’s becoming increasingly known as a company making a big bet on Bitcoin, and is still adding to its stack.
Because of its place as a publicly traded company, and its huge exposure to Bitcoin on its balance sheet, buying MSTR shares can certainly be considered a way to get exposure to Bitcoin as well. But is it a good way to do so? Let’s go over the pros and cons of using Microstrategy for BTC exposure before discussing some things to consider.
Microstrategy’s Bitcoin Bet
Michael Saylor, who used to be a Bitcoin skeptic, has become one of its biggest proponents, and has used his company as a way to bet on Bitcoin in a big way. The company has accumulated more than 225,000 BTC since it started buying, with its average buy price being well below current market prices.
This DCA price is perhaps one of the biggest advantages of MSTR’s Bitcoin bet, as they’re less at risk of needing to sell Bitcoin if the price drops, as it would need to drop significantly for Microstrategy to be in the red on its investment.
Pros of Investing in MSTR for BTC Exposure
Bitcoin Price Correlation
The Pearson correlation coefficient for Bitcoin and MSTR has been as high as 0.883 following the company’s continued acquisitions of Bitcoin over the past four years. Previously, the coefficient, which measures the linear relationship between two variables on a scale from -1 to 1, was -0.658.
The now strong positive correlation indicates that the Microstretegy’s stock price closely tracks the movements of Bitcoin, meaning that you’re getting fairly accurate Bitcoin price exposure when buying MSTR.
Multiple Ways to Invest
Like with spot Bitcoin ETFs, investing in MSTR shares can be done in multiple ways and through different avenues. This allows more traditional investors to get exposure to Bitcoin in a more regulated environment that they’re comfortable with.
Publicly Traded Company
Being a publicly traded company means you can do thorough research into Microstrategy and their balance sheets, allowing you to take a measured approach in investing. Being able to research how the company has performed since its Bitcoin bet, in addition to there being investor calls which inform you of the direction the company is taking regarding Bitcoin and its regular business, can give you confidence in your choice for BTC exposure.
Cons of Investing in MSTR for BTC Exposure
Stock Premium
Due to the amount of Bitcoin on Microstrategy’s balance sheet, there is a premium on its stock price because investors take those Bitcoin holdings into account in addition to the regular business revenues. This means that MSTR is trading above market value because of the Bitcoin on the company’s balance sheet, which also means that the potential for profit is reduced because the gains are priced in to an extent.
It could pay off if BTC explodes, but you could also just buy BTC and get the same results.
Don’t Own Bitcoin
As with when you buy into a spot Bitcoin ETF or simply keep your Bitcoin on an exchange, when you’re buying MSTR for BTC exposure you’re not actually holding any Bitcoin in a wallet you control. If you want to own Bitcoin, then buy it directly.
Microstrategy Still a Business
Though Microstrategy being a publicly-traded company is a good thing when it comes to being able to invest and gain exposure to its shares, it’s important to remember that they are still a software company. Even if their Bitcoin investments are doing well, if their revenues otherwise continue to decline it becomes an odd investment proposition. If you’re truly interested in investing in Bitcoin, there are less complicated ways to do so.
What About MSTX?
On Aug 15, 2024, the SEC approved a new product from Defiance ETFs. The Defiance Daily Target 1.75X Long MSTR ETF (MSTX) aims to offer 1.75 times the daily percentage change in MicroStrategy’s stock price. This is leveraged exposure created through financial derivatives and swap agreements.
These agreements are contracts with financial institutions that allow the Defiance to gain exposure to the performance of MSTR without owning the stock directly. The fund does frequent rebalancing resulting in a higher management fee of over 1%, which is much higher than the fees for regular spot Bitcoin ETFs.
Additionally, the main issue with leveraged exposure through a product with MSTX is that any losses are magnified due to the 1.75x. Yes, gains will also be increased, but in order to maintain their leverage targets the ETF is constantly buying low and selling high, which in conjunction with their higher than normal management fee, will put a serious dent in your gains.
What’s Best for Bitcoin Exposure?
Rather than buying into MSTR or an even riskier version such as MSTX, the best way to get Bitcoin exposure is either through a vanilla spot Bitcoin ETF, by buying Bitcoin itself, or doing both. There’s nothing really wrong with investing in MSTR itself for Bitcoin exposure, you just have to consider the cons noted earlier in this piece.
Fees charged by the vanilla spot Bitcoin ETF providers are generally under 0.25%, with them being waived by many providers for the first year. Additionally, you can put spot Bitcoin ETFs in a tax-free savings account in order to help alleviate any capital gains.
Of course, holding actual Bitcoin remains one of the best ways to have Bitcoin exposure. By having full control over your BTC you can take leverage against it, and sell it whenever you see fit, while also guaranteeing that the BTC is yours without worrying about mismanagement from a financial institution.
Closing Thoughts
There are a lot of ways to get exposure to Bitcoin nowadays. Before the approval of spot Bitcoin ETFs, there really weren’t too many ways to get BTC exposure without buying Bitcoin itself.
Buying MSTR shares was actually a good way to do so previously, but now, with the ease of access to spot Bitcoin ETFs, and the overall improvement of crypto exchanges, you can likely get better Bitcoin exposure for your money. But, MSTR is still a good way to get Bitcoin exposure if their business strategy suits you.
