HomeMost PopularMicroStrategy: A Superior Alternative to Bitcoin ETFs for Investors

MicroStrategy: A Superior Alternative to Bitcoin ETFs for Investors

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Bitcoin Cryptocurrency concept

The Securities and Exchange Commission’s (SEC) prolonged delay in approving Bitcoin exchange-traded funds (ETFs) from applicants like BlackRock and Invesco has left investors searching for alternative ways to gain exposure to the leading cryptocurrency. MicroStrategy Inc (NASDAQ:MSTR), known for its successful Bitcoin strategy, presents a compelling option for investors looking for convenient access to Bitcoin through a stock brokerage account.

MSTR is one of the world’s largest publicly traded corporate holders of Bitcoin, having aggressively accumulated the cryptocurrency using excess cash and funding from debt and equity sources. As of July 31, MSTR held 152,800 bitcoins acquired at an average cost of $29,672 per bitcoin, totaling $4.53 billion. Its strategic buy-and-hold approach has resulted in a strong correlation between Bitcoin’s price return and MSTR’s return, with Bitcoin returning 149% in the past 3 years compared to MSTR’s 117%.

While there are other options for investors seeking exposure to Bitcoin, such as Grayscale Bitcoin Trust, Bitcoin miners, and crypto exchanges, MSTR stands out due to its stable core business that remains unaffected by Bitcoin price fluctuations. As an enterprise software company, MSTR has a solid customer base and generates predictable annual revenues, making it a more secure investment.

MSTR’s Stable Core Business Limits Downside Risk

MSTR’s core business is focused on providing business intelligence products and services, serving brands such as Hilton Hotels and Sony Interactive Entertainment. The company is successfully transitioning its customers to cloud-based subscriptions, with high renewal rates demonstrating the durability of its customer base.

MSTR is also integrating its core business intelligence platform with AI, particularly generative AI and deep learning. Its partnership with Microsoft allows for the integration of MSTR’s analytics capabilities with the Azure OpenAI service, providing additional value to customers.

With a Price to Sales (P/S) ratio of 7.1, MSTR is fairly valued compared to other software companies. However, what sets MSTR apart is its ownership of over 137,000 unencumbered Bitcoins, contributing to its outperformance relative to leading Big Tech and enterprise software stocks.

Access to Low-Cost Capital: A Major Advantage

MSTR’s ability to raise capital at attractive terms is another factor that makes it a compelling choice for investors. With outstanding debt and convertible notes of $2.2 billion, MSTR enjoys a weighted average interest rate of approximately 1.6%. This low-cost debt allows the company to accumulate Bitcoin, anticipating that its value will surpass the cost of debt and interest payments in the future.

The issuance of new shares through At-the-Market (ATM) offerings is another avenue MSTR utilizes to raise capital. In total, MSTR has raised $1.7 billion in gross proceeds through ATM offerings, primarily used to acquire additional Bitcoin. Compared to other Bitcoin players who regularly issue stock offerings, MSTR has a relatively low outstanding share count, providing more room for equity financing.

Concluding with a Word on Risk Factors

While MSTR presents a compelling investment opportunity, it is essential to consider the risks associated with owning the stock. Any potential decision by MSTR to dispose of its Bitcoin holdings could lead to negative investor sentiment. To sustain its Bitcoin strategy, the company will need to continue taking on debt and diluting investors. Additionally, MSTR’s valuation is challenging due to its Bitcoin holdings and frequent impairment charges based on GAAP accounting policies.

Despite these risks, MSTR offers a favorable alternative to waiting for a Bitcoin ETF. Its stable core business, ability to raise capital at attractive terms, and potential early exposure to Bitcoin price gains position it as a superior option for investors seeking Bitcoin exposure.

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