Summary Strategy has declined due to Bitcoin's price drop and a contracting Bitcoin premium. Bitcoin's price is expected to rise, driven by improved liquidity and the creation of a crypto strategic reserve. MSTR's Bitcoin premium will likely expand as Bitcoin's price increases, potentially doubling MSTR's value from current levels. Despite risks like market volatility and liquidity concerns, adding MSTR now could amplify Bitcoin's returns. Thesis Summary Strategy ( MSTR ) has continued to sell off since my last update, reaching levels we had not seen since before the election. This can be attributed to weakness in Bitcoin, but also a falling Bitcoin premium. After dipping below $80,000, Bitcoin rallied following news that a Bitcoin Reserve, including Bitcoin and some other altcoins, will indeed be created. However, this rally has faded, with Bitcoin back at $83,000. Still, the crypto reserve news gives yet another fundamental reason to go long Bitcoin. On top of that, liquidity dynamics suggest a strong reversal in crypto too. And lastly, from a technical perspective, we are beginning to show evidence of a bottom in Bitcoin. Going long MSTR right now is a good idea in order to amplify Bitcoin’s gains. Why MSTR Has Been Falling MSTR was down roughly 22% since my last post following Q4 results, though this will change after we open, with MSTR up over 12% pre-market. The reason behind MSTR’s decline is two-fold. Firstly, the decline in the Bitcoin price. BTC Price (Trendspider) Bitcoin was over 25% from peak to trough before the recent news. Needless to say, MSTR is highly correlated to Bitcoin. Such was the fear in the market that Michael Saylor even took to Twitter to double down on his Bitcoin conviction, suggesting, jokingly I believe, that investors sell their kidneys before their Bitcoin. Michael Saylor Tweet (X) However, MSTR is down over 40% in the same time period, and that’s because MSTR’s Bitcoin premium has also contracted. MSTR NAV Premium (MSTR tracker) In fact, the NSV to premium was near historic lows on Friday, trading at 1.43x its Bitcoin book value. But yesterday’s headwinds are tomorrow’s tailwinds. Expecting a Bitcoin Rebound I discussed the reasons behind Bitcoin’s decline in this recent post . As always, Bitcoin moves in line with liquidity, and liquidity is also deeply linked to Financial Conditions. More liquidity means better Financial Conditions and higher Bitcoin prices. The chart below shows this correlation quite well. BTC and GMI Financial Conditions (LSEG) What we see here is the Bitcoin price change next to the GMI Financial Conditions Index, which has been moved up three months to show the correlation. As we can see, the Bitcoin price change strongly follows the GMI Financial Conditions Index. And what comes next? The Index bottomed out near the start of 2025 and has sharply reversed in Q1. This means a sharp reversal in the Bitcoin price is also possible. We certainly have the beginnings of a sharp reversal following today’s price action. Bitcoin Reserve News On top of this, we have the recent news that a crypto strategic reserve will indeed be put in place . It seems like the US will be buying Bitcoin, Ethereum ( ETH-USD ), and even some other altcoins. However, it's important to note that Trump cannot enforce this unilaterally, and would need approval from Congress. Still, an EO is a step in the right direction. The rally following this news was short-lived, perhaps in part because only a few hours later Trump announced more tariffs, leading to a broad market sell-off. But if this goes through, not only will this create another large buyer, but it is also a huge endorsement for crypto and, most of all, Bitcoin. The surge in demand could be significant, as other governments will likely follow suit and more corporations may add Bitcoin to their coffers. The MSTR Premium Will Expand On the other hand, I’d expect as Bitcoin increases in price, so will Strategy’s Bitcoin premium. To understand why, let’s first understand why this premium exists in the first place. There are a few reasons why this premium exists: Leverage: Strategy can buy Bitcoin using loans and shares. Options: Investors can buy and sell options, which is another reason the underlying can have more demand. Ease of use: It’s an easy way for equity investors to gain exposure to Bitcoin without having to have their own crypto wallet, and arguably safer than having Bitcoin in a centralized crypto exchange. Bitcoin yield: MSTR’s Bitcoin yield keeps increasing as they accumulate more Bitcoin. In other words, a share of MSTR will command more Bitcoin over time. Now, some of these reasons for the premium are less appealing now. For example, options trading is now available for Bitcoin ETFs. We have also seen other companies, like Marathon ( MARA ) begin to actively buy Bitcoin, following the same strategy as Strategy. Nonetheless, the Bitcoin yield is enough to argue that a premium will always be associated with MSTR. MSTR NAV Premium (MSTR-tracker) With this in mind and looking back at the chart above, I believe MSTR’s premium could easily climb back towards at least 2, based on where it was a few months ago when Bitcoin was soaring higher. This leads me to believe that MSTR can more than double from today’s price, based on the appreciation of Bitcoin and the increase of the premium. Risks Needless to say, there are a lot of risks associated with MSTR. This is a volatile stock not for the faint of heart. The biggest risk, of course, is that the underlying asset, Bitcoin, enters a bear market. We mentioned above that Bitcoin is tied to liquidity, so if liquidity begins to fall this would certainly be bad news. There are definitely arguments that support this. Inflation came in hot the last few weeks, the Reverse Repo facility has been emptied, and the market seems to be quite shaky whenever tariffs news creep up. While I like Bitcoin long-term, 2025 could be more challenging than investors expect. Final Thoughts All in all, I believe this is a good spot to add MSTR in order to gain exposure to Bitcoin and amplify its returns.
