MicroStrategy Stock Rises Amid Exposure to Bitcoin
Bloomberg reports that MicroStrategy's exposure to Bitcoin has played a major role in the company's stock performance over the past month, exceeding Wall Street's projections. Based on a sum-of-the-parts analysis, analyst Harte observed that the premium investors are ready to pay for this exposure has created a new norm above 2x. Additionally, he believes that in the upcoming year, the company would profit from Bitcoin-related triggers, especially the anticipated halving of Bitcoin this month.
It is a dangerous move, though, given the strong correlation between the company's shares and a cryptocurrency. The stock loses more heavily during downturns even though it trades at a premium to Bitcoin. This was made clear on a recent Friday when a reversal in the price of Bitcoin caused MicroStrategy shares to plummet as much as 3.2% during intraday trade.
The hazards are further highlighted by Harte's MicroStrategy estimates. If the premium drops and regulatory pressures have an effect on the cryptocurrency market, he believes that shares might fall below $700 and Bitcoin could return to $48,000. However, the stock price may rise to $2,700, or over 70% above current trading levels, if Bitcoin breaks beyond $90,000 and the premium on the company's assets rises.
For the time being, Harte thinks the impending April halving will be a driving force behind the price of Bitcoin and the stock. He pointed out that in the year that followed the first three Bitcoin halving events, the price of one Bitcoin rose by an 80x, 4x, and 6x margin. Because Bitcoin acts as a disinflationary asset, he advises investors to see it as a safe haven from inflation in the face of fiscal stimulus from central banks. He also anticipates that institutional investors will continue to adopt Bitcoin.