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🧊 Should you buy Microstrategy?

🧊 Should you buy Microstrategy?

PLUS: Binance is in trouble

Alex M.
August 03, 2023

GM everyone. This is 2036, the crypto newsletter that pays you.

Here’s what we’re serving up today 🍲: a publicly traded company’s been buying billions of $ worth of bitcoin. It’s run by a software renegade. But is the stock of the company a good investment?

Let’s dig in.

🥔 Today’s meat and potatoes

Get smarter on crypto in 2 minutes

Buying bitcoin the traditional way requires quite a few steps.

You gotta:

open an account with an exchange like Coinbase
create a wallet
buy bitcoin
store it safely

… so, a lot of investors are looking for an easier way.

But what if there was a company that did all this for you?

Enter Microstrategy.

Microstrategy is a publicly traded US company and one of the most famous names in crypto.

For 31 years, it focused on selling business analytics software (they made $121 million last quarter from that).

But in July 2020, its CEO and founder - Michael Saylor - announced a new strategy for the company: going forward, they were gonna buy bitcoin.

Like - a lot of it.

Microstrategy first bought $425 million of bitcoin in August 2020.

And today, they hold ~$4.52 billion worth of bitcoin.

In 2020, Michael Saylor’s argument for buying bitcoin was the following:

Your money is like an ice cube melting away 🧊
Inflation is realistically close to 10%+ per year or more (when you include what politicians remove from inflation figures when it gets uncomfortable, you know…)
So if you do nothing with your cash, you lose 10%+ per year just to inflation.
You can invest your cash in the stock market. But stocks earn on average 8-10% per year. This means that by investing in stocks, you barely break even.
The only hard asset that outpaces inflation is bitcoin (~150% annual return for 14 years)

Michael’s explanation for why he buys bitcoin is so good that it’s worth watching for yourself.

[Beware - Michael also says some crazy sh*t about bitcoin being cyber hornets in space…]

#Bitcoin is a swarm of cyber hornets serving the goddess of wisdom, feeding on the fire of truth, exponentially growing ever smarter, faster, and stronger behind a wall of encrypted energy.
— Michael Saylor⚡️ (@saylor)
6:51 PM • Sep 18, 2020

Okay, so Microstrategy owns a boatload of bitcoin 🚣‍♂️ (and Michael Saylor owns ~$500 million worth personally).

Because Microstrategy trades on the NASDAQ (ticker: MSTR), it’s become a de facto bitcoin ETF for investors. By buying Microstrategy shares, you own a part of the bitcoin they own.

That’s why Microstrategy shares trade roughly in line with the price of bitcoin:

But here’s where it gets interesting…

Microstrategy has become a no-brainer for stock investors who want bitcoin exposure. Everyone wants a piece of it.

So it’s trading for a huge premium to the value of their bitcoin 💰

And Michael Saylor has become a master at leveraging this premium.

When Microstrategy shares trade at a high premium, the company sells its own shares to buy more bitcoin.

Microstrategy makes a profit on investors trying to access its bitcoin and uses it to buy bitcoin at market price. Sell the premium, buy the market price.

It’s brilliant. And it allows them to grow the actual value of their business (book value) by ~30% per year.

Okay, so - does that make it a good investment?

Right now, Microstrategy is an easy way to get bitcoin exposure through your brokerage account.

But when a Bitcoin ETF gets approved, you’ll have better options - which won’t have a premium (the ETF).

That means Microstrategy’s premium is likely to decrease. And Microstrategy could underperform bitcoin.

Yesterday, the company announced it would sell more shares to buy $750 million worth of bitcoin.

So the stock tanked -6%.

On the other hand, an Ethereum fund trading at a large discount - $ETHE - was up +7% despite ETH being down -2% on news that institutions were launching Ether ETFs.

We’ve written about crypto funds trading a discount before here, here, and here.

Not financial advice.