MicroStrategy shocked the world in August when it announced it would deploy $250 million from its balance sheet to buy bitcoin. The move represented the first time a publicly-traded corporation had bought bitcoin for investment purposes.
MSTR, the company’s stock, immediately rallied following the announcement as the market made it clear it considered the move a positive development.
The company’s shares have continued to gain traction after MicroStrategy deployed another $175 million into bitcoin.
Trading at $275 per share at press time, MicroStrategy‘s stock has now gained more than 123% since the close on August 10th.
Of note, MicroStrategy is currently up approximately $300 million on its Bitcoin investment. It purchased 38,250 BTC for a cost basis of $11,111, according to Bitcoin Treasuries. The initial $425 million investment is now worth nearly $727 million.
Why Is MSTR Outperforming Bitcoin?
What makes this performance surprising is that Bitcoin has underperformed MSTR over that same time frame.
According to TradingView, Bitcoin traded at approximately $11,800 on the August 10th close. Trading at $19,000 as of this article’s writing, BTC is up 61% from August 10th, below MSTR’s 100% performance.
The latest leg higher in MSTR appears to be driven by investors looking to obtain exposure to Bitcoin, even though they may not have the ability to purchase exposure to the asset.
Citron Research, a prominent stock commentary site known for its short-selling research, released a report on November 24th calling MSTR a strong bet due to its Bitcoin exposure.
The Citron Fund has a position in MSTR, which we believe is the best way to own Bitcoin. While we believe BTC is going higher, we cannot provide any deeper analysis than what has been overanalyzed by all.
At the same time, Citron Research wrote that the group is long Bitcoin as they believe “there is no better inflation hedge in the market.” The firm specifically cited sentiment shared by Paul Tudor Jones, a billionaire hedge fund manager known for predicting past recessions (or at least profiting during them). Tudor Jones said to CNBC a few weeks ago that he sees Bitcoin as a better inflation bet than gold, adding he thinks investing in Bitcoin is like investing early in Google or Apple.
Reports published by Citron Research have previously shown to significantly affect the market. The shares of electric vehicle maker Nikola fell 18% when Citron released a scathing report in September. Since Citron’s MicroStrategy report on Tuesday, MSTR has gained 16%.
Acquiring Bitcoin Exposure for Cheap
As The BTC Times covered in August, in owning MSTR shares, investors basically own exposure to Bitcoin.
This makes MSTR a good vehicle for those that don’t know how to buy “physical” bitcoin or aren’t comfortable with self-custody, but still want to own exposure to the cryptocurrency. Or, as Citron put it:
For anyone who has tried to buy Bitcoin, it is a real pain in the ass with the constant fear that it can get stolen.
Citron’s statement calling MSTR the “best way to own bitcoin” comes despite the existence of the Grayscale Bitcoin Trust, the shares of which trade on public markets with the ticker GBTC.
An argument for MSTR over GBTC may be the premium that comes with the latter.
Each share of GBTC currently corresponds with 0.00095205 BTC, which is currently valued at $18.08 as of the current Bitcoin price of $19,000. Yet GBTC currently trades on the public markets for $22.36, meaning there is a premium of 23.6%.
On the other hand, Citron presents the case that MSTR is a way to acquire bitcoin for cheap, stating that MicroStrategy has a strong underlying business:
“MSTR’s underlying business is currently trading at a massive discount to peers today at just 2.5x sales. In other words, if bitcoin goes to $0, MSTR’s core business alone is still worth more than its current market price BUT if bitcoin trades to $50K, MSTR could be worth $700. If bitcoin trades to $300K as predicted by Citibank, MSTR would trade at over $1,700 or more than 700% higher than today’s stock price.”
If Bitcoin rockets “to the moon,” as some Wall Street bulls expect, the researchers believe MSTR might just be sitting on the passenger’s seat.