According to Bloomberg, MicroStrategy's leverage on Bitcoin has led to explosive moves in the market. The company's stock sank 16% on Monday, more than 10 times the drop in Bitcoin, and slumped 5.7% on Tuesday as the digital token extended its decline. The business software firm has been accumulating Bitcoin since 2020, making its stock a proxy for investors who want to bet on the cryptocurrency without buying it outright. After selling convertible debt twice this month to finance additional purchases, MicroStrategy now holds approximately $14 billion worth of Bitcoin.
Given the company's market capitalization of about $24 billion, its debt, and the estimated $1.5 billion value of its core business, its shares trade at a more than 90% premium to the value of Bitcoin on its balance sheet, according to Bloomberg calculations. This unique financial alchemy has attracted investors who view MicroStrategy as an attractive vehicle for creating exposure to Bitcoin. The stock also has certain benefits over purchasing Bitcoin exchange-traded funds (ETFs), which have been available since January.
One such advantage is that, unlike ETFs, MicroStrategy shares do not charge a management fee. For long-term investors who expect Bitcoin to rebound, the premium in the shares makes sense due to these advantages over ETFs. The current market situation presents an opportunity for investors to buy the dip in MicroStrategy, betting that Bitcoin will resume its climb.
