While US spot bitcoin ETFs may shrink the premium at which MicroStrategy stock trades relative to BTC, the company’s shares are set to continue offering certain advantages over such funds, some industry watchers say.
Some investors have historically used the shares of business intelligence firm MicroStrategy as a sort of proxy for BTC given the company’s large stack of the asset.
MicroStrategy is the largest publicly traded holder of bitcoin — with holdings totaling 189,150 BTC, as of Dec. 26.
But the milestone launch of spot bitcoin ETFs last week gives investors a new access point to more easily gain BTC exposure.
TD Cowen analyst Lance Vitanza said earlier this month he expected US spot bitcoin ETFs to substantially increase the price of bitcoin and compress the premium at which MicroStrategy trades relative to bitcoin — results set to cause “a material rise in the price of MSTR stock.”
The premium that MicroStrategy shares trade to bitcoin could fall from roughly 40% to between 15% and 25%, Vitanza added at the time.
MicroStrategy’s share price was down 18.5% in the last five days, as of market close Thursday. Bitcoin’s price was down at the time about 4.5% over that span.
Vitanza and research associate Jonnathan Navarrete wrote in a Jan. 16 research note that while the ETF launches have driven down MicroStrategy‘s bitcoin premium, the company shares offer unique benefits.
“Chief among these benefits is that shareholders pay no management fee; corporate overhead is borne by the cash flows associated with its operating enterprise software business,” the TD Cowen analysts wrote. “In fact, even net of its corporate overhead, the company’s free cash flow effectively serves as a ‘reverse fee’ paid not by shareholders, but to shareholders.”
TD Cowen values MicroStrategy’s operating software business at $1.25 billion, Vitanza and Navarrete note. Q3 revenues from MicroStrategy’s software licenses and subscription services were $45 million and $21 million, respectively.
Dan Weiskopf, a co-portfolio manager of the Amplify Transformational Data Sharing ETF (BLOK), told Blockworks the latest pull-back on MicroStrategy’s stock price was “natural” given it was up more than two times bitcoin’s price last year.
He noted that while he believes MicroStrategy founder Michael Saylor and his team have been smart about how they manage their capital structure and buy more bitcoin, the availability of spot bitcoin ETFs gives investors more optionality.
“The question is whether investors in bitcoin through MicroStrategy want to sell and pay [capital gains] to buy an ETF,” Weiskopf said. “Currently, the valuation on enterprise value seems interesting to us in the short term, assuming 190,000 BTC at the current price and the cheap debt.”
The company launched a product in October designed to allow organizations to incorporate generative artificial intelligence into their data applications.
“My question around MicroStrategy is where they go with the software business and whether there is a real AI kicker in the stock,” Weiskopf added.
Jeff Ross, founder of Vailshire Capital Management, said during an X space Thursday that he believes bitcoin miners and MicroStrategy are likely to outperform BTC in the event of an upcoming bull market.
“Personally for my clients, I’ve stuck with bitcoin miners but, more, I’ve stuck with MicroStrategy,” Ross said. “I think [Saylor] does a great job with knowing when his shares are overpriced and distributing more shares to the market and then taking that cash and buying bitcoin. He knows…when to take out debt at low rates in order to buy more bitcoin.”
MicroStrategy indicated in August it had entered into a sales agreement with Cowen and Company, Canaccord Genuity and Berenberg Capital Markets to sell up to $750 million of stock with one or more of those entities. Chief Financial Officer Andrew Kang said the firm could use the proceeds for “general corporate purposes,” including to buy more bitcoin.
Vitanza and Navarrete said in the Jan. 16 research note they ultimately expect any future contraction in the company’s premium over bitcoin to be offset by an increase in BTC’s price.
Segment observers have said they expect bitcoin’s price to increase as greater adoption for spot bitcoin ETFs coincides with the next bitcoin halving.
They added: “A significant premium will continue to be justified, we believe, given MicroStrategy’s lack of management fee, organic bitcoin accretion…use of intelligent financial leverage and downside protection.”
