Founded nearly 35 years ago, MicroStrategy spent the majority of its existence as a relatively obscure software company specializing in business intelligence. However, the narrative took a dramatic turn in 2023 as the MicroStrategy’s stock witnessed an extraordinary surge of 337%, propelling it to the ranks of the most significant gainers among U.S. companies valued at $5 billion or more. This ascent outshone the notable rallies of industry giants such as Nvidia, with a 234% rally, and Meta, showcasing a 194% surge.
The growth has been fueled by the MicroStrategy’s bitcoin holdings, which the company started accumulating in 2020.
In stark contrast to its tech counterparts, MicroStrategy’s appeal to investors is intricately linked to the realm of bitcoin. Embarking on its cryptocurrency journey in mid-2020, the company has diligently amassed an impressive portfolio of around 174,530 bitcoins, valued at approximately $7.65 billion as of the recent Friday valuation.
The Wall Street narrative is now captivated by this unique trajectory, with the stock doubling bitcoin’s gains for the year. Joseph Vafi, an analyst at Canaccord Genuity, emphasizes the centrality of bitcoin to MicroStrategy’s investor allure, stating, “It’s really bitcoin. All the other stuff is healthy and doing a good job, they’re not neglecting it. It’s doing well, it’s leading software in its sector. But it’s basically something we don’t have to worry about.”
MicroStrategy’s market capitalization stands at $8.5 billion, with a striking 90% of its value directly tethered to its bitcoin holdings. The company’s fortunes rise and fall in tandem with the unpredictable fluctuations of the cryptocurrency market. In 2022, a 64% drop in bitcoin’s value translated to a 74% decline in MicroStrategy’s stock. Despite the substantial surge in the current year, MicroStrategy shares still languish below their peak in 2021, during the zenith of the cryptocurrency frenzy.
The genesis of MicroStrategy’s bitcoin strategy traces back to July 2020 when the company, with a market cap of approximately $1.1 billion, decided to allocate some of its cash towards alternative assets, including digital currencies. Facing a shrinking software business since 2015, with annual revenue just under $500 million and minimal profits, the company sought avenues to deploy its resources more effectively.
Co-founder Michael Saylor, then CEO, observed idle cash due to low interest rates and contemplated the best use of funds among equities, precious metals, or bitcoin. Opting for bitcoin, Saylor justified the decision by stating, “The reason we decided to buy bitcoin is because bitcoin represents a form of digital gold. It’s harder than gold. It’s smarter, it’s stronger, it’s faster than gold.”
This strategic move allowed investors to gain exposure to bitcoin through regular stock purchases, streamlining the process compared to direct coin acquisitions. Saylor, now serving as executive chairman, anticipates the bullish momentum in bitcoin to persist into the next year. He emphasizes the gradual shift in capital allocation, as more individuals recognize the significance of digital assets, moving from a mere 0.1% to 0.2% of global capital invested in bitcoin. In his perspective, this evolution reflects a growing awareness of the digital asset landscape.
