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MicroStrategy is a business intelligence software company known for analyzing and visualizing complex data.
In the constant buzz surrounding MicroStrategy and Bitcoin, it’s easy to overlook its core identity as a thriving business. Behind the Bitcoin headlines, MicroStrategy stands as a leading creator of business intelligence software, empowering businesses to analyze and visualize intricate data sets. In a league with competitors like Tableau, Microsoft Power BI, and Qlik, MicroStrategy has consistently elevated its products—simplifying application development, enhancing mobile user support, and integrating cutting-edge AI capabilities.
While MicroStrategy experienced a gradual decline in revenues over the past decade, recent years have brought a noteworthy shift in fortune, signaling a promising turnaround for the company.
While Michael Saylor spearheaded MicroStrategy’s Bitcoin accumulation in 2020, $MSTR stock surged by an impressive 200%, outpacing Bitcoin’s own growth. This remarkable trajectory positions $MSTR as an appealing alternative for investors seeking exposure to crypto’s success without direct Bitcoin investment options.
MicroStrategy’s substantial Bitcoin reserves inject a heightened level of volatility into its stock, akin to the fluctuations observed when directly investing in Bitcoin. Navigate this unique landscape by noting the correlation with BTC prices.
MicroStrategy’s Crypto Play: Navigating the Bitcoin Strategy
Beyond a New Investment Strategy. Unveiling a paradigm shift challenges century-old norms for publicly traded companies. Yet, this audacious move brings forth regulatory, communication, and market challenges. To navigate this uncharted territory, MicroStrategy crafts a nuanced BTC strategy with key considerations:
1. Narrative
Transitioning from conventional assets to cryptocurrency is a significant leap that might unsettle investors and create uncertainty among stakeholders. Any company considering this shift must craft a compelling narrative. MicroStrategy, in a market with limited BTC exposure, positions itself as a conduit for those seeking indirect crypto exposure. This strategy has proven successful; in 2023, while BTC gained 160%, MicroStrategy stocks soared by over 350%.
2. Accounting and Reporting
Navigating the inherent volatility of crypto assets, such as BTC, poses notable hurdles for corporate accounting and financial disclosure. Elevated risks like impermanent loss necessitate MicroStrategy engaging in frequent impairment testing—an essential process to assess the balance sheet’s asset value against its recoverable amount. The ever-changing valuation of BTC further complicates accurate estimations of market risks, future earnings, liquidity, and quarterly results.
3. Risk Management
The irreversibility and near-anonymity of cryptocurrency transactions, while powerful attributes, can be significant challenges for corporate investments. These features heighten the risks of theft, fraud, and losses stemming from inadvertent transactions.
4. Custody and Storage
To mitigate theft risks linked to “hot” wallets, MicroStrategy opts for “cold” wallets for substantial crypto holdings, finding them not only secure but also convenient for risk disclosures. The company entrusts US-based qualified custodians, adhering to banking regulations, to act as fiduciaries. Diversification is achieved through multiple custodial accounts, and for significant BTC transactions, MicroStrategy leans on specialized brokers.
Comparing MicroStrategy’s BTC Holdings to Other Corporate Treasuries
In January 2024, MicroStrategy’s BTC holdings stood at 189,150, surpassing $8.4 billion, constituting 0.901% of the total 21 million BTC supply. Now, let’s compare this with other notable BTC treasuries.
In Comparison to Publicly Traded Companies
In regard to public companies, MicroStrategy emerges as the undisputed leader, leaving its counterparts in the dust. While Marathon Digital Holdings trails as the second-largest treasury holder with 14,025 BTC valued at $624 million, it falls significantly short of MicroStrategy’s dominance.
The combined Bitcoin holdings of public companies stand at approximately $12.3 billion, equivalent to 276,336 BTC. Remarkably, MicroStrategy commands a staggering 68% share of this total, solidifying its unparalleled position in the landscape of publicly traded companies engaged in Bitcoin ownership.
In Comparison to Governments
Global sovereign nations collectively possess a substantial treasury of over $20.1 billion, equivalent to 451,968 BTC, constituting 1.316% of the total Bitcoin supply.
In the realm of government-owned BTC treasuries, MicroStrategy, if considered a nation, would secure the third position. Outpaced only by the USA ($9.22 billion) and China ($8.63 billion), MicroStrategy boasts significant Bitcoin holdings.
It’s worth noting that governments primarily acquire Bitcoin not as an investment but through confiscation from criminal entities. Their involvement in Bitcoin holdings is distinct from their interest in its price fluctuations.
In Comparison to Private Companies
After its bankruptcy filing, Mt. Gox, the erstwhile cryptocurrency exchange, possessed approximately 200,000 BTC valued at $8.9 billion. Given that the majority will be allocated to creditors, Block stands out as the subsequent largest privately owned reservoir of BTC.
Block, a prominent blockchain software services firm, boasts a substantial holding of over 140,000 BTC, currently valued at an estimated $6.2 billion. Noteworthy Bitcoin treasuries also include Tether Holdings ($2.44 billion), Tezos Foundation ($779 million), and Stone Ridge ($445 million).
In Comparison to ETFs
In the realm of Bitcoin exchange-traded funds (ETFs), only Grayscale Bitcoin Trust surpasses MicroStrategy in treasury size. This alignment isn’t surprising, given that ETFs aim to acquire the represented asset with the goal of yielding profits for fund holders. Grayscale leads the pack with a substantial holding of over 643,000 BTC, valued at $28 billion, constituting 3.065% of the total Bitcoin supply.
In contrast, other noteworthy ETFs trail behind MicroStrategy in BTC holdings: Coinshares/XBT Provider ($2.1 billion), Purpose Bitcoin ($1.12 billion), and 3iQ Coinshares Bitcoin ($945 million) stand out as significant players in this domain.
Investment Insight
At its core, a business’s purpose is to create fresh value for the world. When MicroStrategy acquires bitcoin without reinvesting, it raises questions about its primary function. Is it primarily a bitcoin holding company with a minor software business? The value proposition becomes unclear. While there is a shared belief in bitcoin and the potential of a new financial system, MicroStrategy’s substantial bitcoin stash exposes it to unpredictable market fluctuations. Rather than boarding the bitcoin roller coaster with MicroStrategy, investors keen on bitcoin should consider a direct investment in the cryptocurrency for a more straightforward approach.
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