The earnings report for MSTR was released on May 1, sparking discussions and media appearances last Thursday. While my intention was to step back and focus on overarching themes, I often found myself suppressing an eye-roll in response to the MSTR phenomenon.
MSTR stands for MicroStrategy, or simply Strategy as the company is now branded. Under the leadership of Michael Saylor, Strategy has pioneered the “bitcoin treasury” approach that many others, including Metaplanet, have adopted. Just recently, Strategy announced plans to raise $84 billion through various equity and fixed income instruments, highlighting its significant ambition.
Key Considerations
As we delve into this discussion, three pivotal questions arise:
1. Earnings?
The term “earnings” in relation to MSTR needs careful consideration. In many respects, MSTR earnings don’t share a direct correlation with traditional financial metrics, especially when we exclude the influences of certain accounting standards, such as ASC 2023-08. Essentially, it boils down to the fluctuating prices of bitcoin and financing. Wall Street analysts must navigate this labyrinth appropriately.
2. Strategy?
When speaking of Strategy, it’s necessary to clarify its origins: “Strategy; you know, it used to be MicroStrategy.” This evolution in branding is similar to the transitions seen with various cultural icons and their identities.
3. Don’t be a hater?
MSTR is supported by a market capitalization of $107 billion against its bitcoin holdings of $53 billion. The company’s trajectory lacks a safety net or a clear alternative plan. Should it falter, the repercussions could resonate throughout the Bitcoin market.
Even with skepticism from some sectors, we can acknowledge a few key points:
- Strategy’s capital raises are impressive, capturing the industry’s attention.
- Year-to-date, MSTR has increased by 36%, contrasting sharply with Bitcoin’s modest gain of less than 5%. This strategic positioning is noteworthy.
- MSTR leverages its stock price volatility for primary financial activities, such as issuing compelling convertible bonds and creating listed options volume, while also deploying corporate yield strategies. It’s essential to distinguish between these strategies and to avoid merely dubbing options trading as a yield strategy.
- Preferred stocks like STRK and STRF have attracted attention from discerning investors.
A Movement and a Category
Strategy has successfully created both a movement and a distinct category within the financial landscape. Leveraged MSTR ETFs, including this innovative ETF, showcase a new approach to engaging with high volatility investments. Moreover, Grayscale’s announcement of an ETF that tracks 30 companies holding significant bitcoin reserves further delineates this burgeoning sector.
Additionally, Cantor Equity Partners’ SPAC merger with Twenty One Capital, targeting $3 billion worth of bitcoin, reflects a rising interest that could provoke animated discussions in financial circles, often recalling the excitement of previous market movements.
While the addition of bitcoin to the treasury of non-crypto companies represents a fascinating shift in financial strategy, it remains constrained to bitcoin for now.
US Exceptionalism in Bitcoin
Amidst a backdrop of loosening regulatory constraints within the U.S. regarding digital assets, bitcoin still maintains a central role in industry dialogues, accounting for approximately two-thirds of the entire cryptocurrency market.
This focus on bitcoin is justified when considering its position as a store-of-value asset class within corporate treasuries traditionally allocated to liquid currencies and treasury bills. However, as diverse forms of bitcoin exposure emerge—leveraged strategies, yield options, and various protective mechanisms—it becomes increasingly important to broaden the discussion to include other blockchain assets that offer unique value propositions.
Historically, many investors struggled to implement comprehensive exposure to the digital asset class, particularly due to limited options within brokerage and futures accounts, notwithstanding Ethereum’s available alternatives. The lack of enthusiasm surrounding ETH investment vehicles stems, in part, from this narrow focus.
If 2024 marked bitcoin’s significant ascent, let us hope that 2025 encourages investors and traders to explore a more diversified and profound engagement with the entirety of the digital asset class. Otherwise, the narrative surrounding U.S. crypto investments may risk alignment with a narrow “bitcoin-only” mindset, potentially leading to missed opportunities in a rapidly evolving market.
