MicroStrategy vs Bitcoin Analysis: Can MSTR Stock Price Really Outperform BTC?
An analysis of MicroStrategy’s historical performance and whether its core business sustains value independently of its BTC holdings. Image: CCN
- Stock Price Now Mirrors Bitcoin: Before MicroStrategy’s initial Bitcoin purchase in August 2020, its stock price exhibited a negative Pearson correlation with BTC, where the two assets typically moved in opposite directions.
- MicroStrategy’s Stock Premium: Over the past four years, MicroStrategy’s stock has traded at an average premium of 15.22%.
- Rising Capital Allocation to Bitcoin: Excluding the anomalous slowdown in Bitcoin acquisitions in 2022, MicroStrategy has maintained a consistent and escalating pace of capital commitment toward expanding its Bitcoin holdings.
MicroStrategy has become a major attraction for investors seeking exposure to Bitcoin (BTC) through a traditional corporate structure. The company’s aggressive acquisition of Bitcoin has sparked intense debates about its role not just as a software company but also as a significant player in the cryptocurrency market.
In this CCN Reports edition, we will examine MicroStrategy’s true valuation by delving into its Bitcoin holdings, acquisition strategies and future projections. By comparing MicroStrategy’s approach with direct Bitcoin investment, we offer a nuanced analysis of whether the company serves as a superior investment vehicle compared to Bitcoin itself.
Key considerations include the sustainability of its acquisition pace, the influence of market conditions on future purchases and wider implications for investors seeking stability and access to the volatile yet potentially lucrative cryptocurrency market.
From Skeptic to Bitcoin Maxi: The Evolution of Michael Saylor’s BTC Perspective
To truly grasp the intricacies of MicroStrategy’s financial strategies, it’s essential to explore the driving force behind the company’s bold pivot to Bitcoin — Michael Saylor. His journey from a vocal Bitcoin skeptic to one of its most ardent proponents provides crucial context for understanding the company’s current state and direction.
The context will serve as a fundamental reference point in deciphering the rationale behind MicroStrategy’s Bitcoin accumulation, which will be explored in detail below.
Born on Feb. 4, 1965, in Lincoln, Nebraska, Saylor was raised in a military family, which instilled in him a blend of discipline and ambition from an early age.
He pursued his education at the Massachusetts Institute of Technology on a full Air Force ROTC scholarship, majoring in aeronautics and astronautics, as well as science, technology and the history of science. The academic foundation endowed him with a unique ability to identify disruptive technologies well before they entered the mainstream and discern their implications for society.
In 1989, Saylor co-founded MicroStrategy, which would later establish itself as a leader in business intelligence. His vision for MicroStrategy centered on harnessing the growing potential of data analytics to enable better-informed business decisions. The company quickly distinguished itself through its innovative approach to relational online analytical processing, transforming the way enterprises handled and analyzed large datasets.
But Saylor’s vision extended far beyond business intelligence. In his 2012 book, “The Mobile Wave: How Mobile Intelligence Will Change Everything,” he foresaw that mobile technology would transform multiple sectors—from commerce to communication to social structures.
He argued that the rise of mobile devices, coupled with advancements in cloud computing and social networks, would shake up traditional industries and fundamentally reshape the way businesses and economies function.
Yet, despite his strong track record in recognizing disruptive trends, Saylor did not immediately see Bitcoin’s potential. In late 2013, his view on Bitcoin was anything but positive. In fact, he openly expressed skepticism. On Dec. 7, 2013, Saylor cautioned his followers on X (formerly Twitter):
The sentiment was echoed in another post a few days later, in which he said , “Bitcoin days are numbered. It seems like just a matter of time before it suffers the same fate as online gambling.”
Nevertheless, a subtle shift in Saylor’s perspective started to surface in early 2014. On March 2, 2014, he shared an opinion piece by Joe Nocera, a New York Times columnist, who characterized Bitcoin as a commodity rather than a currency, marking the beginning of a more profound understanding of the cryptocurrency.
Saylor’s growing interest in Bitcoin’s properties, particularly its decentralized nature and resistance to government control, became more apparent in a March 12, 2014, post:
By March 25, 2014, Saylor had begun to articulate a new rationale, viewing Bitcoin as property rather than just a currency. He wrote , “A logical/predictable outcome of crypto-currency debate–‘Bitcoin Is Property Not Currency in Tax System, IRS Says.’”
Later on, Saylor reflected on how Bitcoin unexpectedly altered the trajectory of his life and career. He was ready to retire, after serving as a public company CEO for decades. However, Bitcoin disrupted his plans. As he put it, “Bitcoin plopped itself into my life […] I started actively researching, and it dragged me down the rabbit hole.”
This exploration prompted him to revisit and delve deeply into subjects such as Austrian economics, history and technology, which he hadn’t engaged with in years.
Saylor described how this process turned him back into a student, a role he hadn’t anticipated at that stage in his life. Instead of stepping into retirement, Bitcoin dragged him “onto the world stage”—he found himself traveling, engaging in public debates, and becoming a vocal advocate.
As Saylor himself acknowledged, “I was now drawn into a role of advocacy […] and these are all things that I discovered late in life. I would say I’m a late bloomer.”
MicroStrategy’s Core Software Business Overview
To determine the true value of MicroStrategy’s stock, it’s vital to conduct a thorough examination of the company’s core business activities. Rather than focusing on revenue sources or the nature of the products and services offered, the emphasis should be on the financial health of the company.
This involves assessing the company’s consistency of profit generation and whether the business operations contribute positively to the company’s financial stability. By analyzing profitability and cash flow, one can measure whether the core business sustains value independently of its Bitcoin holdings.
An analysis of MicroStrategy’s historical performance from 2010 to 2019 focuses on the period predating its Bitcoin purchases, providing a clearer insight into its financial well-being. This time frame allows for an evaluation of the company’s core operations, without the distortions caused by subsequent Bitcoin acquisitions.
With the initiation of Bitcoin purchases, MicroStrategy’s balance sheet underwent changes, including increased debt and a growth in “digital assets,” which resulted in impairment losses due to the unclear accounting rules for cryptocurrencies.
For instance, in 2022, the digital asset impairment losses made up 76.9% of MicroStrategy’s operating expenses, contributing to a net loss of $1.47 billion.
The Financial Accounting Standards Board (FASB) addressed this matter by issuing ASU 2023-08 in 2023. This new standard mandates entities to measure crypto assets at fair value, with changes recorded in net income. In simpler terms, companies now report gains and losses based on current market values.
While the new accounting standard brings clarity to financial evaluations, it also introduces complexities to appraising the company’s fundamental operations. If the value of Bitcoin holdings rises while the core business is declining, it could misleadingly suggest profitability where none exists.
A genuinely profitable business should generate net income at the end of the year with room for future growth, regardless of external asset fluctuations.
To understand whether MicroStrategy’s core business is truly profitable, it’s crucial to examine its earnings per share (EPS) over time. MicroStrategy’s EPS has shown significant volatility over the years. Thus, in 2010, its EPS stood at $3.85, but then, it dropped to $0.46 by 2014, only to surge to $9.33 in 2015.
Depending on the selected time frame, MicroStrategy’s performance could appear either on a downward or upward trend, but neither perspective provides a complete and accurate picture on its own.
To address this, it’s important to calculate the compound annual growth rate (CAGR) across multiple periods, such as 3, 4, 5, and up to 10 years. The mean of these CAGRs presents a more balanced perspective on the company’s growth, resulting in a reading of 4.39%.
For comparison, analysts at Yahoo Finance project a growth rate of 10% for MicroStrategy. Conversely, simply taking the 10-year CAGR of EPS gives a figure of -1.35%, suggesting that EPS will decline by 11.1% by 2032. Nonetheless, this interpretation is misleading.
Not only do analysts disagree with the negative projection, but the historical performance of MicroStrategy also challenges this view. Despite consistently generating substantial operational income, the company has demonstrated a recurring downtrend pattern over five years.
For example, the period from 2010 to 2014 shows a downward trajectory, which repeats from 2015 to 2019 and once again from 2020 to 2023.
Although the 2020-2023 period covers only four years so far, the fourth year is already mirroring the downtrend patterns observed in 2013 and 2018.
Given this recurring pattern, it is plausible to predict that 2024 will follow suit, as indicated by the Q1 and Q2 reports, revealing a total operational loss of $32.25 million.
If this trend persists, forecasting tools like the SARIMA (Seasonal AutoRegressive Integrated Moving Average) model and Holt-Winters seasonal method can aid in projecting what lies ahead by 2032.
SARIMA considers both seasonality and trends by breaking down time series data into seasonal and non-seasonal components, enhancing the accuracy of forecasts.
The Holt-Winters method, which addresses seasonality and trends as well, utilizes exponential smoothing to estimate future values. By running both models, we can average the results to arrive at a more refined projection for MicroStrategy’s future operational income.
Both the historical data and these forecasting models suggest that the likelihood of a persistent decline in income solely from the company’s business activities alone is low. Recognizing this is vital for two reasons.
First, it helps determine whether the business can sustain itself until 2032 or if it may need to liquidate some of its Bitcoin holdings to ensure survival—and, if so, determine the extent of liquidation. Secondly, it evaluates the company’s worth based solely on its business operations, disregarding the influence of Bitcoin reserves.
Given the relatively stable average income from operations maintained over the years, it is reasonable to assume that the EPS from 2010 to 2019 will likely remain consistent in the future as well. It is important to note that this analysis intentionally disregards Bitcoin holdings to focus on establishing the intrinsic value of MicroStrategy based solely on its core business operations.
If Bitcoin were taken into account, the projected EPS would show a notable variance, but understanding the company’s intrinsic value without external assets offers a clearer picture of its fundamental worth.
When examining MicroStrategy’s historical EPS from 2010 to 2019, the average EPS amounts to $3.94 per share. The trailing twelve-month (TTM) P/E ratio for 2019 was 42.4, while the industry average stood at 67.35, with a forward P/E ratio of 29.58 for the software application sector.
| Year | EPS |
|---|---|
| 2019 | $3.36 |
| 2018 | $1.98 |
| 2017 | $1.53 |
| 2016 | $7.95 |
| 2015 | $9.33 |
| 2014 | $0.46 |
| 2013 | $7.38 |
| 2012 | $1.86 |
| 2011 | $1.68 |
| 2010 | $3.85 |
| Average | $3.94 |
When calculating the Peter Lynch ratio, also known as the PEG ratio, the P/E ratio is divided by the compounded annual growth rate. For MicroStrategy, using the P/E ratio from 2019 (based on trailing 12 months data) and the average CAGR over the past 10 years results in a ratio of 9.66 A PEG ratio above 1 indicates that the stock is overvalued, as the price does not adequately reflect the slower growth rate.
By taking a conservative approach and assuming a standard P/E ratio of 20, along with the average EPS of $3.94 over ten years, the stock price is estimated to be $78.8. Adjusting for the recent 10:1 stock split, this price would amount to $7.88 per share.
Considering the total float, which includes class A and B shares, totaling 194,320,700 shares, the resulting market cap for the business operations would only be $1,531,247,116. This valuation offers a conservative and realistic assessment of MicroStrategy’s value based solely on its core business, without factoring in any impact from its Bitcoin holdings.
Bitcoin Acquisitions
MicroStrategy made its initial Bitcoin purchase on Aug. 11, 2020. Since then, the company has been actively acquiring Bitcoin, amassing tens of thousands of BTC each year. As of Aug. 8, 2024, MicroStrategy held 226,500 BTC, obtained at an average price of $36,821 per BTC, with an average annual acquisition rate of 45,300 BTC.
| Year | $ Amount | BTC |
|---|---|---|
| 2020 | $1,125,000,000 | 70,470 |
| 2021 | $2,625,000,000 | 53,921 |
| 2022 | $277,052,651 | 8,109 |
| 2023 | $1,873,000,000 | 56,650 |
| 2024 | $2,440,000,000 | 37,350 |
| Average | $1,668,010,530 | 45,300 |
The 2022 Acquisition Slowdown
In 2022, MicroStrategy’s Bitcoin acquisitions significantly slowed down, with only 8,109 BTC purchased for $299,250,000. Despite Bitcoin prices hovering around $16,000 by August 2022—a tempting buying opportunity compared to the $11,863 per BTC purchase price in August 2020—the company decided against increasing its BTC holdings.
It remains uncertain whether future bear markets will offer similar opportunities, given the growing interest from exchange-traded funds (ETFs) and traditional financial institutions. This suggests that there could be periods when—despite favorable BTC prices—MicroStrategy might refrain from expanding its BTC portfolio due to various factors.
Annual Acquisition Patterns
Excluding the anomaly of 2022, MicroStrategy’s average annual BTC acquisition stands at 54,598 BTC, which amounts to approximately $2.02 billion. Over the years, MicroStrategy has been increasing its yearly capital allocation for Bitcoin purchases.
It’s essential to focus on the dollar amount invested rather than just the quantity of BTC, given Bitcoin’s price fluctuations driven by its scarcity and growing demand.
For instance, with an investment of $2 billion, MicroStrategy could acquire 40,000 BTC at a price of $50,000 per BTC. However, if the price of Bitcoin rises to $100,000, the same investment would only secure 20,000 BTC.
In 2024, MicroStrategy invested $2.44 billion to acquire 37,350 BTC. While this is the largest financial commitment the company has made so far, the actual amount of Bitcoin acquired is lower than in previous years. To sustain its aggressive purchasing strategy, MicroStrategy has filed for a new $2 billion at-the-market equity offering .
If Bitcoin remains at $60,000 at the time of purchase, this move could potentially add about 33,333 BTC to MicroStrategy’s holdings. Even if not all the funds are directed towards Bitcoin, the company could still accumulate around 70,000 BTC.
Future Projections
Most analyses tend to concentrate on MicroStrategy’s present valuation, without considering the prospective expansion of its Bitcoin holdings. With Saylor’s commitment to purchasing Bitcoin using existing resources, it is reasonable to anticipate continued accumulation.
Moreover, MicroStrategy has introduced the Bitcoin Yield KPI to assess the efficiency of its approach to acquiring Bitcoin in a manner it deems beneficial for shareholders. The company sees it as a way to help investors understand its choices regarding funding Bitcoin acquisitions through the issuance of additional common stock or convertible instruments.
As of August 2024, the company’s Bitcoin Yield stands at 12.2%. MicroStrategy aims for an annual Bitcoin Yield of 4% to 8% from 2025 to 2027 and possibly beyond, extending to 2032.
| Year | Bitcoin Yield KPI |
|---|---|
| 2021 | 47.3% |
| 2022 | 1.8% |
| 2023 | 7.3% |
| 2024 Q1+Q2 | 12.2% |
Historical data illustrates how this KPI has translated into actual Bitcoin acquisitions:
| Year | Bitcoin Yield KPI | BTC per 1% |
|---|---|---|
| 2021 | 47.3% | 2,630 |
| 2022 | 1.8% | 4,505 |
| 2023 | 7.3% | 7,760 |
| 2024 | 12.2% | 3,061 |
| Average | – | 4,500 |
On average, each 1% change in the Bitcoin Yield KPI has corresponded to about 4,500 BTC.
Based on these figures, the projections for upcoming Bitcoin acquisitions are as follows:
| Scenario | Annual Yield | BTC Acquired Per Year |
|---|---|---|
| Bear | 4% | 18,000 |
| Base | 6% | 27,000 |
| Bull | 8% | 36,000 |
These scenarios indicate that, contingent upon the implementation of its strategy, MicroStrategy’s Bitcoin reserves could potentially expand to 370,500 to 514,500 BTC by 2032.
Debt and Financing of MicroStrategy’s Bitcoin Acquisitions
MicroStrategy secures the substantial capital required for its aggressive Bitcoin acquisitions mainly through two methods: share dilution and debt financing.
Share Dilution
MicroStrategy’s witnessed a notable increase in share dilution in recent years. As of December 2020, the company had 9,587,022 shares of class A and class B common stock outstanding. By August 2024, this number had surged to 19,432,070 shares, making an approximate 103% increase.
In traditional investment analysis, this type of dilution is commonly seen as unfavorable, because the increase in the number of shares usually lowers the value of current shares.
The reasoning is simple: As more shares enter the market, the ownership stake and potential earnings per share for existing shareholders decrease, resulting in lower per-share value and a diluted stake in the company.
Projected Number of Outstanding MSTR Shares by 2032
Assuming MicroStrategy continues to issue new shares each year to finance its Bitcoin acquisitions, linear regression offers the most straightforward approach for estimating future share counts. Although share dilution involves complexities and uncertainties, we can still project a close approximation for our calculations.
This method provides a reasonable estimate, though it could either overestimate or underestimate the actual number of shares. Only time will reveal the accuracy of these projections.
Using this approach, we estimate that by 2032, MicroStrategy could have around 423.96 million Class A and Class B shares outstanding, which would represent a 118% increase from the current share count.
The estimate includes the additional shares expected to be issued in 2024 through the $2 billion at-the-market equity offering. At a price of $135 per share, the offering will likely result in approximately 14.8 million new shares being added.
A Contemporary Perspective on Dilution
The conventional perspective is challenged in the context of MicroStrategy. When viewed through the lens of the company’s unique strategy—effectively blending software operations with Bitcoin holdings—the reality appears more nuanced. Despite the dilution, the appreciation of Bitcoin per share presents a compelling alternative viewpoint.
Since 2020, the value of Bitcoin per share has increased by around 58.6%. This implies that each share of MicroStrategy now represents a more significant portion of Bitcoin assets than previously, even with the expanded share count.
Put simply, at a Bitcoin price of $60,000, each share now effectively holds $69.93 in Bitcoin value, considering the current reserve supply and factoring in a 10:1 stock split.
A stock split increases the number of shares a company has by dividing each existing share into several new shares. For example, in a 10:1 stock split, each share an investor owns is split into 10 shares. This reduces the price per share while maintaining the overall value of the investment. However, this action can be viewed as a double-edged sword.
On one hand, a stock split can attract investors by making shares more affordable and improving liquidity. Many brokerage platforms do not permit the purchase of fractional shares, meaning investors cannot buy 0.1 or 0.5 shares.
The reduced price per share is more accessible for individual investors, even though the overall value of the investment remains unchanged before and after the split.
If an investor had $10,000 to invest, they could purchase 10 shares at $1,000 each before the split or 100 shares at $100 each after the split. In both scenarios, the investor maintains the same proportion of ownership in the company, and their overall exposure to the stock remains unchanged.
A stock split does not affect the total value of the investment or the investor’s ownership percentage; it simply makes the shares seem more affordable and accessible.
On the other hand, some investors may be deterred by a stock split, perceiving it as a cosmetic change rather than an indication of a genuine value. They might consider stock splits to be a superficial move, as splits do not impact the company’s overall market capitalization or financial health.
Debt Financing
MicroStrategy also leverages debt to fund its Bitcoin acquisitions. The company has utilized low-interest debt, such as convertible and senior secured notes, to reduce financing expenses. As of August 2024, as per the Q2 report, the company’s total debt amounts to $4,218,274,000.
This encompasses recent moves like redeeming $650 million of 2025 convertible notes through share settlements and executing an $800 million offering of 2.25% convertible senior notes due in 2032, with servicing costs estimated at $144 million.
The core idea underpinning this strategy is centered on the notion of accretive financing, a term often employed by Saylor. When issuing equity or taking on debt at favorable conditions, the aim is for the Bitcoin investment to boost the company’s total worth more than any dilution impact from additional shares.
Furthermore, with low interest rates on debt and a rise in Bitcoin value, this strategy fortifies MicroStrategy’s financial standing and ultimately benefits all shareholders.
Saylor encapsulates this strategy with his advice, “Don’t bleed your capital with taxable dividends. Don’t surrender your capital with stock buybacks. Don’t dilute your shareholders with risky overpriced M&A activity.” His focus remains on leveraging financial instruments that support long-term growth while safeguarding shareholder value.
Future Debt Projections
Taking into account the company’s Bitcoin Yield KPI and assuming an optimistic scenario with an 8% annual yield, MicroStrategy would have to acquire roughly 36,000 BTC each year. Based on the current Bitcoin price of $60,000, this translates to around $2.16 billion per year, which can be rounded to $2 billion for ease of understanding. This figure also aligns with the company’s typical yearly spending on Bitcoin purchases.
If MicroStrategy continues this strategy, it is reasonable to anticipate that around half of the required $2 billion annually will be covered through share dilution, while the remaining half will be secured via debt instruments like convertible notes.
However, this is a rough estimate, and the pattern can always change, as it will in 2024 due to an additional $2 billion in financing that MicroStrategy will secure from an at-the-market equity offering, bringing the total to $4.44 billion used in 2024 to acquire Bitcoin.
It is possible that we may see an increase by 2032 and a significant change in the pattern, but there are too many factors at play. Therefore, it is more practical to assume an average based on the past four years.
Over the span of eight years, this approach could potentially add approximately $8 billion in new debt to the company’s balance sheet. However, this projection must also consider the company’s ongoing debt management, including repayments and the settlement of existing obligations. Therefore, the net increase in debt will not simply be $8 billion added to the current $4.22 billion.
To offer a more accurate projection, we utilized the ARIMA (AutoRegressive Integrated Moving Average) model, which analyzes historical data to forecast future trends. According to this model, MicroStrategy’s total debt could reach approximately $8,842,930,211.97 by 2032.
Correlation Between MicroStrategy and Bitcoin
MicroStrategy’s stock price typically correlates with the movement of Bitcoin. As the price of Bitcoin rises, MicroStrategy’s stock often sees more pronounced gains. Conversely, during Bitcoin’s price decreases, MicroStrategy stock tends to experience more significant declines.
This relationship can be quantified using the Pearson correlation coefficient. This coefficient measures the linear relationship between two variables on a scale from -1 to 1. A coefficient of 1 indicates a perfect positive correlation, -1 indicates a perfect negative correlation, and 0 indicates no correlation.
Historical Correlation Analysis
To assess the influence of MicroStrategy’s Bitcoin acquisitions on its stock price, we compare two periods: before and after the company’s initial purchase of Bitcoin on Aug. 11, 2020.
Pre-Bitcoin Purchase Period (Aug. 10, 2016, to Aug. 10, 2020)
Throughout this period, the Pearson correlation coefficient between MicroStrategy’s stock price and Bitcoin stood at -0.658. The negative correlation indicates that historically, the movements of MicroStrategy’s stock price and Bitcoin’s value have moved in opposite directions.
Post-Bitcoin Purchase Period (Aug. 11, 2020, to July 10, 2024)
Following MicroStrategy’s investment in Bitcoin, the Pearson correlation coefficient rose to 0.883. The strong positive correlation now indicates that the company’s stock price closely tracks the movements of Bitcoin, demonstrating a more direct relationship between the two.
Analysis of the Difference
The transition from a negative to a strong positive correlation indicates a shift in market perception of MicroStrategy. It has evolved from being seen solely as a software company to being recognized as a major Bitcoin holder and a proxy for investment in Bitcoin. As a result, the stock has become more volatile and sensitive to Bitcoin’s price changes.
The change in investor perception and the increased volatility suggest that MicroStrategy’s future stock performance will closely follow Bitcoin’s market trends.
Premium on MicroStrategy’s Stock Price
Following MicroStrategy’s aggressive acquisitions of Bitcoin, the company’s stock price has shown increased volatility, along with a premium that reflects market expectations. This premium represents the extra value investors attribute to MicroStrategy beyond just the worth of its Bitcoin holdings.
Over a four-year period, the premium averaged 15.22%. So if the fair value of MicroStrategy’s stock—based solely on its Bitcoin reserves—is $100, the market would value the stock at $115.22.
Understanding the Premium
A premium represents the extra value investors assign to MicroStrategy stock beyond the worth of its Bitcoin holdings. It occurs when investors see additional benefits or potential that surpass the stock’s fundamental financial metrics.
In the case of MicroStrategy, the premium on MicroStrategy’s stock can be attributed to several key factors:
- Despite its significant Bitcoin investments, MicroStrategy continues to operate as a software company, showcasing steady revenues, profits, and growth potential in its core business. The operational value adds a layer of stability and appeal, making the company attractive to investors beyond its Bitcoin holdings alone.
- The leadership of Michael Saylor plays a crucial role. His strong and vocal support for Bitcoin has elevated MicroStrategy’s position in the corporate realm, particularly in the context of cryptocurrency adoption. Investors see Saylor’s strategic vision and management approach as assets that enhance the company’s market value.
- Market sentiment and speculation further contribute to the premium. With the anticipation of Bitcoin’s value increasing in the future, investors are pricing in potential future gains. Thus, the speculative element boosts the perceived value of MicroStrategy’s stock.
Moreover, MicroStrategy is progressively being perceived as a more formal and secure avenue for investing in Bitcoin. It serves as a proxy or even as a pseudo-Bitcoin ETF. The perception positions the company as a compelling option compared to directly investing in Bitcoin, outperforming not only Bitcoin itself but also Bitcoin ETFs and major stock indices like the S&P 500 or the Magnificent 7.
Investors view MicroStrategy as offering the benefits of Bitcoin exposure with the added security and legitimacy of a publicly traded company.
Risk-Adjusted Return of MicroStrategy
Although MicroStrategy has faced controversy in the stock market, it has proven to be a solid investment over the years. The standard deviation, a measure of volatility, of MicroStrategy’s stock before its Bitcoin purchases was 25.6% from January 2015 to December 2019.
For comparison, Bitcoin had a standard deviation of 82.7%, while the S&P 500 benchmark (VOO) had a standard deviation of 11.5% during the same period.
Following the Bitcoin acquisitions, MicroStrategy’s stock volatility experienced a significant surge, reaching a standard deviation of 116% from January 2021 to August 2024.
In contrast, Bitcoin’s standard deviation decreased to 66.5%, and the S&P 500’s volatility saw a slight increase to 16.7%. In simpler terms, the stock has become a riskier asset post-Bitcoin acquisition.
While volatility is an important factor, it doesn’t paint the full picture. The Sharpe ratio, which measures risk-adjusted returns, offers a more comprehensive analysis.
For reference, the S&P 500 had a Sharpe ratio of 0.66 from February 1992 to June 2024.
Prior to MicroStrategy’s Bitcoin purchases, the Sharpe ratio for MicroStrategy was -0.335, which indicates a poor risk-adjusted return. Bitcoin, in contrast, had a Sharpe ratio of 1.034, signifying it was a superior investment during that period.
Following its Bitcoin acquisitions, MicroStrategy saw an improvement in its Sharpe ratio to 0.793, whereas Bitcoin’s Sharpe ratio stood at 0.608.
MicroStrategy’s increased volatility post-Bitcoin acquisition reflects higher risk, but the improved Sharpe ratio indicates better risk-adjusted performance. The transition from a negative to a positive Sharpe ratio for MicroStrategy suggests that the company’s decision to heavily invest in Bitcoin enhanced its overall return in relation to the risk involved.
Investors now face a scenario where MicroStrategy’s stock displays higher volatility, but the potential returns validate the heightened risk. Bitcoin remains a high-risk, high-reward asset, but MicroStrategy’s stock now offers a compelling investment case with improved risk-adjusted returns.
Book Value of MicroStrategy
Another important aspect to consider when evaluating MicroStrategy is the book value of its stock. The book value represents the company’s assets minus its liabilities, providing a tangible measure of its worth. According to MicroStrategy’s Q2 2024 report, the company had $1,365,183,000 in assets, excluding its Bitcoin holdings.
With Bitcoin priced at $60,000, MicroStrategy’s Bitcoin holdings amount to $13.59 billion.
To calculate the book value, one must add the assets value to the Bitcoin holdings and then subtract the company’s debt, which stands at $4,218,274,000, as of August 2024.
This results in a total book value of $10.74 billion. With the current number of outstanding shares, both Class A and Class B, this translates to a book value per share of $55.27.
Combined Fair Value Calculation
To determine the fair value, we combine the book value per share and the intrinsic value of the company:
Fair value per share = $55.27 + $7.88 = $63.15
By incorporating the historical premium average of 15.22%, we add this premium to the fair value:
Fair value with 4-year average premium = $63.15 × 1.152 = $72.76
Given Bitcoin at $60,000 and MicroStrategy’s reserves, a stock price of $72.76 reflects fair value. Should the stock price fall below this mark, it would be considered an undervalued asset, presenting a potential investment opportunity.
Is MicroStrategy a Better Investment Than Bitcoin?
To assess whether MicroStrategy is a better investment than Bitcoin, it is essential to project Bitcoin’s potential price by 2032 across various scenarios.
What Will 1 Bitcoin Be Worth in 2032?
Rainbow Chart
The first approach to forecasting Bitcoin’s price by 2032, the year of the sixth halving, is the Rainbow Chart. This chart utilizes logarithmic regression to mitigate the extreme price fluctuations that Bitcoin has experienced, making the long-term trends clearer.
It displays Bitcoin’s historical price data on a logarithmic scale and divides it into color bands, each representing different levels of market sentiment. The lower band (dark blue) signifies undervalued conditions, while the upper band (red) indicates overvalued conditions.
By mid-April 2032, during the sixth halving, the dark blue band on the Rainbow Chart shows Bitcoin prices between $223,208.93 and $283,696,85, with an average of $253,452.89. In contrast, the upper red band ranges from $1,456,772.46 to $1,911,617.11, with an average of $1,684,194.78.
In a base case scenario, the estimated midpoint between these ranges is $968,823.84.
| Scenario | BTC Price |
|---|---|
| Bear | $253,452.89 |
| Base | $968,823.84 |
| Bull | $1,684,194.78 |
Stock-to-Flow
The second method for predicting Bitcoin’s price by 2032 involves using the Stock-to-Flow (S2F) model. The S2F model assesses Bitcoin’s scarcity by comparing its current supply (stock) to the new supply being introduced (flow).
It utilizes this ratio to estimate future prices based on Bitcoin’s halving cycles, which gradually decrease the rate of new supply over time.
According to PlanB, the creator of the original model, Bitcoin’s price by 2032 is projected to reach approximately $5,000,000. This estimate is based on the model’s assumption that the ongoing reduction in supply will continue to drive the price upwards.
What Experts Say About Bitcoin’s 2032 Price
Another way to predict Bitcoin’s price by 2032 is to consider the predictions from various analysts. Below is a summary table of predictions for Bitcoin around that year. Predictions that focus on timeframes outside of 2029–2035 have been excluded to maintain relevance.
| Forecaster | BTC Price | Year |
|---|---|---|
| MicroStrategy | $300,000-$900,000 | 2032 |
| Jan F. van Eck | $380,000-$1,260,238 | 2029-2034 |
| Ark Invest | $1,500,000-$3,800,000 | 2030 |
| Berstein | $1,000,000 | 2033 |
| Jurrien Timmer (adoption curve) | $1,250,000 | 2032 |
| Jurrien Timmer (S2F) | $10,000,000 | 2032 |
| Jurrien Timmer (Metcalfe) | $1,000,000 | 2032 |
| Fundstrat | $500,000 | 2029 |
For MicroStrategy, the original prediction was set for 2045. However, by applying their Annual Rate of Return (ARR) scenarios—21% for bearish and 37% for bullish—we adjusted the prediction to fit the 2032 timeframe. This adjustment yields a projected range of $300,000 to $900,000.
At the Paris Blockchain Week 2024, Jan F. van Eck, the CEO of the investment management firm VanEck, suggested that Bitcoin could achieve 50% of gold’s market cap in the next five to ten years. Currently, gold’s market cap is around $16 trillion.
If Bitcoin manages to reach 50% of that, the market cap would be $8 trillion, or around $380,000 per BTC at today’s gold price of $2,450.
By 2030, the London Bullion Market Association (LBMA) anticipates that gold will reach $7,000 per ounce . Historically, gold’s market cap has increased by about 2.3 times since January 2014 .
Assuming a conservative two times increase in gold’s market cap by 2032 and factoring in ongoing gold mining, which adds about 2,500 to 3,000 tonnes per year to the existing supply of 212,582 tonnes , the total gold supply would rise to around 235,000 tonnes.
With the projected gold price of $7,000 per ounce, the gold market cap could reach $52.93 trillion. If Bitcoin captures 50% of this market cap, its price would be approximately $1,260,238.
The remaining predictions are mostly general estimates without much detailed context. However, Jurrien Timmer from Fidelity offered a more comprehensive analysis by employing multiple models.
He incorporated the S2F model, the adoption model, which predicts price based on user growth and market adoption, and Metcalfe’s law, which links network value to the number of users. Each of these models generated different price estimates, resulting in a broad range from $1 million to $10 million per BTC.
Excluding the most extreme value from Timmer’s S2F model, the combined predictions from all sources suggest a price range for Bitcoin between $847,143 and $1,387,177, depending on whether the scenarios are bearish or bullish. The central estimate derived from these forecasts places Bitcoin’s price at around $1,117,160 by 2032.
CCN’s 2032 Bitcoin Price Prediction
We have two models that could potentially predict Bitcoin prices by 2032.
The first model envisions Bitcoin as a global reserve asset. To begin, we look at the current valuation of the global asset market, which is estimated to be around $900 trillion.
Bitcoin, currently with a fully diluted market capitalization of $1.26 trillion at $60,000 per BTC, represents a mere 0.14% of this total.
Considering the precedent set by companies like MicroStrategy and the growing trend of corporate Bitcoin adoption—exemplified by El Salvador’s move to embrace Bitcoin, investments from Fairfax County retirement funds , and potential future regulations in countries like the U.S. that might recognize Bitcoin as a reserve asset—even a conservative projection of $500,000 per Bitcoin would only elevate its market share to $10.5 trillion, or about 1.17% of the global asset market.
A more optimistic scenario with Bitcoin reaching $1,000,000 would place it at 2.34% of the global market.
The second model centers on Metcalfe’s Law, popularized by Timothy F. Peterson in his 2018 paper entitled “Metcalfe’s Law as a Model for Bitcoin’s Value.” According to Metcalfe’s Law, the value of a network is proportional to the square of the number of connected users (n^2).
For Bitcoin, the “network” is represented by the number of Bitcoin wallets, which serves as a proxy for the total user count.
Peterson’s adaptation of Metcalfe’s Law incorporates adjustments for Bitcoin inflation using a Gompertz function. This function is addressing the declining rate of new Bitcoin entering the market.
The model demonstrates that Bitcoin’s value increases non-linearly as the user base expands, showing a strong correlation between Bitcoin’s price and network growth, with an R^2 value above 80%.
While Peterson’s research from 2011 to 2017 provides valuable insights, it lacks forecasts for 2032. We used his model as a basis to create our own projections for Bitcoin’s potential future prices.
To apply Metcalfe’s Law, we first need to estimate the number of Bitcoin wallets or users by 2032. Research from Boston Consulting Group, Bitget, and Foresight Ventures suggests that this number could reach 1 billion by 2030 .
This represents an increase of 42% to 44% from the current estimate of around 560 million to 580 million wallets in 2024, according to Triple-A and the Crypto.com exchange.
For our projections, we will assume that the number of wallets in 2032 will be similar to the 2030 estimate. Given that 51% of these wallets are expected to hold Bitcoin, the number of Bitcoin wallets could reach around 510 million by 2030-2032.
Our model also draws inspiration from Fred Krueger, InvestAnswers, and Vixcontango and has been adjusted to reflect current projections and trends. This adjustment leads to a projected Bitcoin price of $1,483,224, which we round to $1.5 million per BTC by 2032.
It closely matches predictions from other analysts, with the exception of the Stock-to-Flow model. In our view, the S2F model is not a dependable method for evaluating Bitcoin’s future price, as it often generates overly bullish and unrealistic forecasts.
When considering the mean of analyst predictions, the rainbow chart, and the global reserve scenario, we estimate a price of $1,325,339 per Bitcoin.
Based on our projections for Bitcoin’s price in 2032 and our assumption that MicroStrategy’s Bitcoin reserves will grow to between 370,500 and 514,500 BTC, with outstanding shares reaching 423.96 million, we outline the following scenarios:
In all scenarios—bear, base, or bull—Bitcoin clearly outperforms MicroStrategy as an investment by a significant margin. Regardless of whether MicroStrategy’s stock is valued at its true price or with the inclusion of the four-year average premium, Bitcoin consistently delivers nearly double the return on investment compared to MicroStrategy.
MSTX: The Leveraged MicroStrategy ETF
Recently, the SEC approved the Defiance Daily Target 1.75X Long MSTR ETF (MSTX) , which aims to offer 1.75 times the daily percentage change in MicroStrategy’s stock price. MSTX achieves its leveraged exposure through the use of financial derivatives, primarily swap agreements.
These swaps are contracts with financial institutions that allow the fund to gain exposure to the performance of MSTR without owning the stock directly.
The fund rebalances its holdings daily to maintain the 1.75x leverage target, which is why the returns can deviate from expectations if held over periods longer than one day. Since the fund is actively managed, it incurs higher fees (1.29% annually), more than typical ETFs such as VOO or VTI.
However, investors must also be aware of two factors. First, since MSTX is leveraged at 1.75x, it will magnify losses as well as gains. Second, calculating the future return of this ETF is challenging due to the compounding effect and daily rebalancing.
The actual return of a leveraged fund with 1.75x daily leverage will not simply be 175% of the stock’s return over the same period.
To determine the exact return, it would require calculating each day’s performance, but no one can predict daily stock returns over 8 years, or even a shorter time frame. Nonetheless, MSTX remains a consideration for investors looking to amplify potential gains beyond what the stock alone can offer.
Conclusion
Our analysis aimed to account for all possibilities by 2032, including share dilution, Bitcoin reserves, debt, Bitcoin price, and Michael Saylor’s commitment to the strategy. The results paint a less optimistic picture for MicroStrategy when compared to Bitcoin returns. However, significant differences exist between these investment options.
Bitcoin is a commodity without an issuer. It offers sovereignty and global accessibility. It can be self-custodied anywhere, even in regions where holding traditional stocks is challenging. In contrast, MicroStrategy represents a different investment proposition. As a publicly traded company, it carries counterparty risk and demands extensive due diligence, including the review of comprehensive disclosures.
But MicroStrategy serves a specific purpose for particular investors who cannot directly purchase Bitcoin or Bitcoin ETFs and are limited to publicly traded companies. For those seeking Bitcoin exposure within traditional financial frameworks, MicroStrategy provides an indirect way to participate in Bitcoin’s potential growth.
Only time will tell how Bitcoin and MicroStrategy will perform by 2032. Their success will depend heavily on the widespread adoption of Bitcoin by various entities across the globe. This includes potential recognition by governments as a reserve asset, integration by pension funds and institutional investors as a key component of their portfolios, and broader acceptance by nations as a legal currency.
The extent to which Bitcoin is embraced in these capacities will play an important role in determining the long-term outcomes for both Bitcoin and MicroStrategy.
CCN Reports is a regular series that delves into the details to provide in-depth analysis of cryptocurrencies and the companies associated with them. We aim to engage a global audience interested in what’s what, who’s who and perhaps even why’s that.
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