Summary MicroStrategy’s unique Bitcoin strategy offers massive long-term potential but comes with extreme volatility, making it speculative and risky for most investors. MicroStrategy stock amplifies Bitcoin's gains and losses with debt and equity providing a Bitcoin yield, but beware of heightened risks compared to Bitcoin in downturns. Bitcoin’s next peak post-halving may occur in late 2025, but MicroStrategy’s shares are likely to lose momentum sooner, favoring Bitcoin as the better near-term investment. MicroStrategy ( MSTR ) is a fascinating business. It is, potentially, the financial engineering project with the highest long-term return prospects of modern times. That said, it comes with the high cost of severe volatility, in what I term a "bipolar" business model. Until later in 2025, a bull run for Bitcoin following its April 2024 halving leaves MicroStrategy shares looking lucrative. But it is speculative to ascertain when MicroStrategy shares, which are likely to plummet in value earlier than Bitcoin due to their intangible value, will lose momentum. Either hold MicroStrategy shares for many decades, or trade the cycles, in which case sell soon. I would prefer to buy Bitcoin now to hold for the next nine months (maximum) than MicroStrategy shares. One thing is for certain, don't bet the farm on MicroStrategy stock. Emotional wellbeing is worth more than the world's weight in gold; with such severe volatility inevitable, both will be lacking at times for long-term MicroStrategy shareholders. Operations & Financials MicroStrategy 's business is split between two distinct areas, business intelligence ('BI') software and Bitcoin investment. Its business intelligence software operations involve enterprise-grade business intelligence and analytics software, but it is the company's Bitcoin investment strategy which makes the company distinct. The BI software segment accounts for all of its operating revenues because the company's Bitcoin business is founded on asset appreciation. As of the last trailing 12 months, the company's revenue is down 7.35% year-over-year, and down 10.3% year-over-year for Q3 2024 . The one area of notable strength in the BI software segment is the company's subscription services, which are growing at a robust rate of 32.5% year-over-year as of Q3. The reality of this situation is that the company is unlikely to be dominant in BI software in the foreseeable future. Instead, it appears that the BI software segment is now taking a back seat and is supporting the company's Bitcoin treasury strategy. MicroStrategy is now the largest corporate holder of Bitcoin . As of January 2025, its Bitcoin is valued at approximately $48 billion, totaling 461,000 BTC. MicroStrategy's holdings represent about 2.2% of the total Bitcoin supply (21 million maximum). The company's financial strategies surrounding Bitcoin get very complex, and to me, it is classical financial engineering mixed in with exorbitant amounts of volatility due to the company's stock being inextricably linked to the inevitable volatility of Bitcoin. The strategy is not as complex as it appears at face value. MicroStrategy issues equity and ultra-low-interest debt to buy more Bitcoin, allowing it to accumulate more than average purchasers relying on cash for Bitcoin acquisitions. The key is that with each equity raise and debt raise, the company increases Bitcoin per share, also called the Bitcoin yield. It can do this because the company's stock trades at a premium to its Bitcoin holdings. Michael Saylor, the executive chairman and co-founder of MicroStrategy, is clearly long-term bullish on Bitcoin. He's likely not wrong about the long-term uptrend in the asset's price, but it's a long-term outlook fraught with intense volatility. The question on any logical person's mind is, "what happens if the Bitcoin price crashes, as it has been prone to in the past?" Answer: Data by YCharts A 70% drop in Bitcoin from present levels could result in an 80%-90% or greater decline in MicroStrategy's share price. Bitcoin has reliably collapsed by 70%-80% after the post-halving peak in price in the past. As the company has used significant debt to finance its Bitcoin purchases, lenders may view the company as a higher-risk borrower in a heavy Bitcoin price drawdown, making it challenging to refinance debt or raise new capital. As a result, MicroStrategy may be forced to sell some of its Bitcoin holdings at unfavorable prices to meet its debt obligations, further eroding shareholder value. In addition to this, the company may decide to issue additional equity in a downturn to raise funds, further diluting shareholder value. While the company is currently benefiting from a positive feedback loop of Bitcoin price appreciation leveraged through equity and debt financing, the company has, quite literally, set itself up for regular cycles of negative feedback loops following these positive periods. This bipolar business model involves a lot of suffering during downturns. I can understand Bitcoin-related investments as 2%-3% of total assets, but definitely not as my primary business model. Don't bet the farm on MicroStrategy, unless you have the iron will to weather literal and regular financial depressions that Saylor must have developed in the United States Air Force . Coming back to the basic fundamentals, MicroStrategy continues to operate at a loss. This is highly unlikely to have changed in Q4. The company has not provided any guidance, instead focusing on its three-year "21/21 Plan" in the Q3 2024 report. Its aim is to raise $21 billion in equity and $21 billion in fixed-income securities, with a Bitcoin yield of around 8% for the years 2025 through 2027. The Bitcoin yield reflects the percentage change in the ratio of the company's Bitcoin holdings to its diluted shares over a given period. I expect more of this narrative surrounding Bitcoin in the Q4 report, rather than any major focus on the company's BI software business. The earnings call will also give management the opportunity to discuss the impact on shareholders of (and the company's overall financial strategy to tackle) the recently reported multibillion-dollar tax on unrealized Bitcoin gains . The 15% tax rate on unrealized Bitcoin gains is the result of a policy, called Corporate Alternative Minimum Tax ('CAMT'), introduced by the Inflation Reduction Act ('IRA') in 2022, under Biden. Given the Trump administration's support for cryptocurrency, we could see the CAMT repealed if Saylor pushes the White House for intervention, potentially an area that the new White House AI and Crypto Czar, David Sacks, can look into . Valuation MicroStrategy currently holds 461,000 BTC, valued at about $48 billion. This is, obviously, the starting point for ascertaining the company's present valuation. I apply a conservative "treasury premium" of 2x to the Bitcoin value because the company has a unique market position and the ability to raise equity and debt to finance further Bitcoin acquisitions. The conservative 2x treasury premium also reflects my concern for the heavy volatility MicroStrategy shareholders are exposed to. The company's revenues have been declining, so I use a very moderate 2x price-to-sales ratio on its trailing 12-month total revenues of $467.2 million, a valuation of $934.4 million for its legacy software business. The company has $4.27 billion in debt, so I add this to the total valuation; it has $46.34 million in cash, so I subtract this from the total valuation. Adding all of this together gives a total fair enterprise value estimate of $101.16 billion. The current enterprise value is $92.49 billion, indicating an 8.57% margin of safety. MicroStrategy Valuation (Oliver Rodzianko's Calculations) While the valuation might be approximately "fair" right now, the medium- to long-term worth of buying MicroStrategy shares at its present valuation depends mostly on the direction of the price of Bitcoin over the next five or more years. Bitcoin undergoes a "halving" every four years . Historically, these events are followed by significant price increases for Bitcoin, with the peak of the price appreciation usually 12 to 18 months later. Given that the most recent halving occurred in April 2024, it's reasonable to forecast a potential peak for this cycle of between April and October 2025. Bitcoin / U.S. Dollar + Halving Dates & Countdown (Author's Chart Made Using TradingView) Given the above chart, the fourth halving will almost certainly show similar diminishing returns compared to previous halvings. A 3x multiple is a conservative forecast. The Bitcoin price at the fourth halving was $64,262, so we can forecast a $192,786 peak price for Bitcoin in around October 2025. The current Bitcoin price is now nearly $105,000, so the potential nine-month upside is approximately 83.5%. However, the MicroStrategy share price tends to react with downside volatility sooner than the Bitcoin price. This is largely due to its intangible value related to its "leveraged" properties of increasing Bitcoin per share through equity and debt issuance; MicroStrategy shareholders will be aware of the heavier volatility than Bitcoin, and will therefore seek to exit the bull run earlier to avoid the heavy downside that is inevitable. Given that buying MicroStrategy shares now is largely dependent on speculation about when we will see the earlier sentiment reversion than Bitcoin, I am more bullish on Bitcoin right now for its returns over the next nine months or so, as we are already nine months post-halving. Therefore, my rating for MicroStrategy is a Hold. Conclusion: Hold Investing is not only about the returns that you make over the years, it is also about the quality of the life you live as those returns compound. Investors who only own cryptocurrencies, of which there are many, will have recurring periods of great unhappiness while other parts of the market continue to compound steadily. The potential for immense long-term returns at the expense of having to endure severe and regular volatility is not a worthwhile trade to me. An investment portfolio is a reflection of a person's value of physical assets. Unfortunately, cryptocurrency puts that reflection on unstable ground. Although the long-term returns could be phenomenal, I prefer the slower and steadier road to long-term wealth accumulation. MicroStrategy is a Hold for the brave, but an "avoid" for most investors.
