MicroStrategy Stock at Risk as Bitcoin ETFs Loom; What Now?

Michael Saylor’s choice to invest in Bitcoin may now be in question due to the upcoming introduction of exchange-traded funds (ETFs) that hold the biggest cryptocurrency.

This year, a significant legal decision has paved the way for the US Securities and Exchange Commission (SEC) to potentially allow ETFs that directly invest in Bitcoin. This development has prompted experts and investors to wonder if MicroStrategy’s shares will continue to command a premium price.

Even MicroStrategy itself has acknowledged this concern in a recent filing, and the company is set to release its quarterly results later on Wednesday.

Microstrategy’s Concerns

The Tysons Corner, Virginia-based business stated in a filing dated August 1 that “to the extent that our Class A common stock is viewed as an alternative-to-Bitcoin investment vehicle and trades at a premium to the value of our Bitcoin holdings, that premium may also be eliminated, causing the price of our Class A common stock to decline.”

Saylor’s Bitcoins Journey

Since mid-2020, Michael Saylor has collected around $5.5 billion in cryptocurrencies, turning the previously struggling software company into a Bitcoin proxy for stock investors. During this time, the value of MicroStrategy’s stock has surged more than fourfold, mirroring Bitcoin’s remarkable ascent, while the benchmark Standard & Poor’s 500 Index has only grown by 40%.

Saylor initiated Bitcoin purchases in 2020, contending that the company should keep less cash due to declining concerns about inflation. This change in strategy was prompted by stagnant software company earnings. Saylor stepped down as the company’s CEO last year, emphasizing his focus on the Bitcoin component of their dual strategy.

Also Read: MicroStrategy’s Bitcoin Investment: Is the DCA Strategy Paying Off?

Analyzing the Premium

As of September, MicroStrategy owns a significant 158,245 Bitcoins. Analyst Lance Vitanza from TD Cowen estimates that the company’s shares carry a premium of around 30% over the business’s overall value. However, if the SEC approves ETFs in the coming months, this premium might decrease to a range of 15% to 25%.

Vitanza, who maintains an “outperform” rating for MicroStrategy, predicts that while the premium may decrease, it won’t disappear entirely.

Here’s the Bright Side

Vitanza takes comfort in the notion that ETF adoption could fuel a Bitcoin price surge, in turn boosting MicroStrategy’s stock price and counteracting the premium decline. He believes that the core software business and the company’s ability to leverage its assets for more Bitcoin acquisitions will continue to make MicroStrategy an appealing investment.

According to Vitanza, “the launch of a spot ETF will result in the investment of several tens of billions of dollars in Bitcoin.” “We believe that while the premium in MicroStrategy stock will decrease, the increase in Bitcoin’s price will more than offset this.”

Q3 Results – Speculation

A Bloomberg analyst survey projects MicroStrategy’s third-quarter sales to reach $125.8 million, with earnings before taxes and other charges at $25.3 million, reflecting a performance similar to the same period in the previous year. Earnings before interest, taxes, depreciation, and amortization (EBITDA) stood at $8.2 million.