Summary I view IBIT as being the best way for 99% of investors to buy Bitcoin. I discuss the "sustainable bubble" thesis for the cryptocurrency asset. I expect the impact from Strategy to gain momentum as it rapidly increases its ownership of the float. I am initiating coverage with a buy rating. The iShares Bitcoin Trust ETF ( IBIT ) has performed weakly to start the year. Tech and growth stocks have been hit hard as aggressive valuations were met with rising geopolitical tensions. Given the convenience and liquidity, I view IBIT to be the best way for the average investor to express a bullish Bitcoin ( BTC-USD ) view. While much has been written about the long-term future for Bitcoin as a potential global reserve currency and potential disruptor of gold as an investment asset class, I discuss the thesis from a different perspective. I view Strategy’s ( MSTR ) committed program of buying Bitcoin as being a very significant driver of long-term upside for IBIT. I am initiating coverage with a buy rating. IBIT ETF Price IBIT is roughly double the levels when it first started trading at the start of the 2024 year. Data by YCharts IBIT has been volatile recently, but I do not see it being as volatile as Bitcoin was in past years, in part due to the ETF’s existence. IBIT and others have arguably validated Bitcoin as a credible investment allocation. What is the IBIT Bitcoin ETF IBIT is one of many ETFs that offer a stock-like way to own Bitcoin. With IBIT being an ETF, investors can purchase the fund and gain exposure to Bitcoin at virtually no pricing differences, except for a 0.25% expense ratio. IBIT Investment Page IBIT has nearly $50 billion in net assets, making it the largest Bitcoin ETF by far. Bitcoin investors might choose IBIT due to the reputation of BlackRock ( BLK ), which should enable the fund to continue capturing investor market share. That in turn might enable it to offer competitive pricing relative to peers. I note that the Grayscale Bitcoin Mini Trust ( BTC ) offers slightly lower fees at 0.15%, but I would not be surprised to see IBIT eventually offer lower fees over the long term as it is able to exert pricing power due to the larger AUM. For the vast majority of investors, I see little reason to buy Bitcoin directly when IBIT offers a much easier transaction experience while being backed by a global financial giant. Bitcoin and the Strategy Thesis Before I discuss my Strategy thesis, I should first mention the commonly said thesis for the cryptocurrency. My favorite is the view that Bitcoin will replace gold as an investment holding in portfolio allocations. The logic makes sense to me: I am of the view that many investors who invest in gold are mainly doing so due to gold being “not a stock, not a bond, and not cash.” Bitcoin fits that same criteria, and with it rising rapidly in popularity, I see it benefiting from strong secular trends similar to the internet and video streaming. I’m not trying to be hyperbolic, I’m just speculating that newer and younger investors who are inclined to invest in alternative assets might favor IBIT over gold, in sharp contrast with older investors. This thesis allows for a way to value the potential upside of IBIT. With the gold market cap standing at around $21 trillion , IBIT still has 10x potential before it fully takes over gold. It is admittedly difficult to forecast exactly when and to what degree this thesis might play out, with that difficulty being due to IBIT not being itself a business. I want to instead offer another view on the angle, with a strong focus on Strategy. MSTR is likely well known to IBIT investors, as its CEO Saylor has made it clear that the company’s mission purpose is solely to invest in Bitcoin. They have done an extraordinary job of doing that, with their Bitcoin holdings doubling over the last year alone to around 2.5% of the total supply . MSTR in theory should be able to continue buying the cryptocurrency at an aggressive pace. This is due to the fact that the stock still commands a generous NAV premium, standing at nearly 100% . MSTR is able to create shareholder value by simply issuing stock at the NAV premium and buying Bitcoin. This requires minimal effort or innovation and can be done day after day so long as the NAV premium exists. This is not inherently sustainable as the NAV premium is unlikely to exist forever (at least at this magnitude), but I again point to the loyal shareholder following which appears to view this process as an “infinite money glitch.” I note that MSTR has issued new preferred stock offerings in both January and in March . Both of those offerings came at high dividend yields, indicating clearly that MSTR is willing to acquire Bitcoin even at high costs of capital. More importantly, I view these preferred issuances as lending confidence to the notion that MSTR can sustain a hefty NAV premium due to being a seller of bitcoin-backed financial securities, something that CEO Saylor has mentioned repeatedly . Even as retail investor enthusiasm fades, I see a real argument for MSTR being able to sustain some NAV premium over the long term due to it being able to offer Bitcoin-backed investment securities. All bubbles are based on the “greater fool” theory, in which buyers are hoping for someone else to be willing to pay a higher price. All bubbles eventually burst because there that greater fool disappears. But that’s where it gets interesting here. With no offense intended, MSTR can be considered that greater fool, and it has committed to remaining that greater fool for the rest of eternity. MSTR owns just over 2.5% of Bitcoin today, but that ownership should grow rapidly moving forward. As the company sees its ownership jump to 5%, 10%, and eventually 20%, I wouldn’t be surprised to see the price of Bitcoin continue to climb simply due to decreasing supply. It is exceedingly unusual to make any claim of a “sustainable bubble” but this Bitcoin-MSTR tie up comes close. MSTR might not be such a significant driver of Bitcoin price movements just yet, but I expect that to change as its ownership continues increasing. With all this in mind, this thesis looks simple and perhaps even compelling: buy IBIT and wait for MSTR to acquire the rest. Conclusion More and more institutions are adopting Bitcoin, which isn’t surprising given the strong returns it has posed over the last decade. IBIT is not for everyone, especially those who prefer to invest in businesses that can grow earnings over the long term. I view IBIT and Bitcoin as being an interesting opportunity on a “sustainable bubble,” made possible due to the aggressive purchasing activity by MSTR. MSTR already owns 2.5% of all potential Bitcoin outstanding, and I see that ownership increasing rapidly over time and with it, the price of Bitcoin. I am initiating coverage on IBIT with a buy rating.
