Right now, cryptocurrency investors are laser focused Bitcoin (Crypto: Bitcoin). That seems fair. The recent approval of new spot Bitcoin ETFs has made Bitcoin even more popular than it already was.
But if you broaden your focus, there are several stocks that stand to benefit from any future gains in Bitcoin. The one on my radar right now is Accurate strategy (NASDAQ:MSTR). This may seem strange, given that MicroStrategy is an enterprise software company. But if you look under the hood, you’ll see why this stock is up 100% or more this year.
MicroStrategy as a Bitcoin stock proxy
The first thing you need to know about MicroStrategy is that it holds a lot of Bitcoin on its balance sheet. And I mean a lot. After a recent buying spree at the end of 2023, MicroStrategy now owns 189,150 Bitcoin. This ranks first among all publicly traded companies, and it’s not even close. At Bitcoin’s current price of $42,500, these properties are worth about $8 billion.
If you compare the company’s total market capitalization ($6.5 billion) to its bitcoin value, it becomes immediately clear how much MicroStrategy is benefiting from the price of bitcoin. Your Bitcoin holdings are worth more than the company itself! In fact, some investors refer to MicroStrategy as a Bitcoin proxy stock because, over the past year, the stock has essentially been just a way to access Bitcoin without actually buying Bitcoin. As a result, over the past 12 months, MicroStrategy’s stock is up more than 100%.
Bitcoin Proxy Stock or Bitcoin ETF?
But there is only one problem. The approval of new Bitcoin exchange-traded funds (ETFs) in January 2024 completely changed the narrative. The same investors who used MicroStrategy as a proxy stock can now invest in Bitcoin ETFs instead. In theory, Bitcoin ETFs would do a much better job of tracking the price of Bitcoin. Therefore, they could ultimately make MicroStrategy less attractive to investors.
As evidence of this, MicroStrategy’s price fell by 20% in just the first 48 hours after the Bitcoin ETF was approved. For the year, MicroStrategy is down 30%. On top of all that, former MicroStrategy CEO (and current CEO) Michael Saylor says he plans to sell 315,000 shares in the company worth more than $200 million between now and April. So that should put downward pressure on MicroStrategy’s price as well.
Will Bitcoin reach $100,000?
But there may be two very good reasons to buy the dip in MicroStrategy. First, investors seem to completely ignore the fact that MicroStrategy is actually an enterprise software company. As noted above, they attribute zero value to the company’s core business operations (which include AI and business intelligence-related software solutions), and instead simply value MicroStrategy as a proxy for Bitcoin. This is an additional source of value for MicroStrategy.
Furthermore, there is the future price of Bitcoin to consider. The Bitcoin ETF is just the first catalyst for Bitcoin this year. The second major catalyst – the upcoming halving event – will arrive in April. In three previous halvings, the price of Bitcoin has risen significantly, so investors expect the same to happen this year as well. This partly explains why Saylor plans to sell all of the company’s shares by April: he needs money to invest in more Bitcoin before it goes completely parabolic.
Admittedly, this is a very risky strategy, but it is very bold and it may work. According to a growing number of influential voices on Wall Street, Bitcoin could reach $100,000 by the end of the year. Therefore, therefore, every Bitcoin on MicroStrategy’s balance sheet must also double in value. This means that MicroStrategy’s market capitalization should also double.
Before you buy MicroStrategy
Just keep in mind that investors have a number of different ways to access Bitcoin. They can buy it directly via cryptocurrency exchanges such as Coinbase International. They can buy it indirectly via a futures-based Bitcoin ETF. They can buy them indirectly via the spot Bitcoin ETF. Finally, they can buy it indirectly by investing in Bitcoin proxy stocks like MicroStrategy.
Your risk-reward profile will likely determine which strategy makes the most sense for your portfolio. For example, an investment giant Vanguard Group It said it would not offer new Bitcoin ETFs to its clients. Instead, (drum roll, please) it will be uploaded to MicroStrategy.
To me, this is a very compelling argument that Bitcoin proxy stocks like MicroStrategy will continue to do well in 2024. You get indirect access to Bitcoin, as well as the additional value from the core operations of the company. There will likely be a fair amount of volatility along the way, so just be sure to stay committed if you plan to add to your MicroStrategy position this year.
Should you invest $1,000 in MicroStrategy now?
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Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin and Coinbase Global. The Motley Fool has a disclosure policy.
1 Surprising Crypto Stocks to Buy Before They Go Up 100% was originally published by The Motley Fool