It's been a fantastic two-year run for MicroStrategy (MSTR 1.62%), which is up more than 1,200% during that time period. This stock market success can primarily be attributed to its unprecedented Bitcoin (BTC 3.47%) buying spree, which has seen the company accumulate more than 2% of all Bitcoin currently in circulation.
Not unsurprisingly, MicroStrategy's stock price has shot up over the past two years as the price of Bitcoin soared.
And now MicroStrategy has decided to go all-in on Bitcoin. During a quarterly earnings call with analysts at the beginning of February, MicroStrategy announced that it is rebranding as "Strategy" and integrating the iconic Bitcoin symbol as part of its brand identity.
So what exactly does that mean for investors?
The rebranding of MicroStrategy
To answer that question, it's important to understand why MicroStrategy is rebranding. The goal, says executive chairman and founder Michael Saylor, is to show once and for all that the company is 100% committed to its Bitcoin strategy.
Image source: Getty Images.
From now on, Strategy will be a Bitcoin Treasury Company (BTC) that holds Bitcoin. Every single action that the company takes from here on out will be focused on accumulating as much Bitcoin as it can. Case in point: In late 2024, the company announced a new "21/21 Plan" that will see it accumulate as much as $42 billion in new Bitcoin over the next three years using a combination of debt and equity.
This ramped-up buying strategy is fully in line with Saylor's core belief that Bitcoin is the only cryptocurrency investors should be holding these days. As he sees it, Bitcoin is on a rocket ship to a price of $13 million, and he wants Strategy to be part of that remarkable ride. From his perspective, Strategy has the potential to become a $10 trillion company.
Is MSTR undervalued or overvalued?
The only problem, though, is that some analysts, investors, and academics are starting to ask some very serious questions about the viability of this Bitcoin strategy. For example, Carnegie Mellon University finance professor Bryan Routledge has pointed out that there is no rational explanation for why Strategy should be valued at nearly twice the value of its Bitcoin holdings, especially when the company has been losing money for four consecutive quarters.
Right now, Strategy holds 478,740 Bitcoins with a market value of $45 billion. Yet the stock market is giving Strategy a valuation of $85 billion. In part, this can be explained away by investors anticipating future gains for Strategy's Bitcoin holdings.
NASDAQ: MSTR
Key Data Points
But just keep in mind: If the price of Bitcoin does not continually go up, then the entire Bitcoin-centric business model starts to fall apart. For example, in its latest quarterly earnings call, Strategy acknowledged that it had to take an impairment loss of $1 billion on its Bitcoin holdings, and that pushed the company into a net loss of $670 million for the quarter.
If this continues, and if the company continues to abandon its core software business (which was helping to generate cash), Strategy might need to dip into its Bitcoin holdings at some point to cover debt payments or operating expenses. And that could send Strategy into a downward spiral.
At the very least, selling significant amounts of Bitcoin at one time could send the price of Bitcoin down, further eroding the value of Strategy's core Bitcoin holdings, thereby dragging down the value of Strategy as well.
The Bitcoin bank scenario
However, there is another scenario to consider. And that involves Strategy evolving into a Bitcoin bank. As some analysts see it, Strategy is simply a bridge brand to the next evolution of the company, which would focus even more heavily on financial services. Conceptually, this could be a full-service investment bank offering Bitcoin-backed (rather than dollar-backed) financial products.
Does this sound improbable? Well, in late 2024, Michael Saylor floated this very same idea. He described a vision for Strategy as being a "Bitcoin bank" that could make money on its Bitcoin holdings. So, instead of just sitting on a pile of Bitcoin and waiting for its price to go up, Strategy would be able to lend this Bitcoin out to others. Of course, this would likely require regulatory approval, so keep your expectations in check.
Can Strategy hit a $500 price target?
Right now, Strategy sits at a price of $323, which is approximately 32% below its all-time high closing price of $474. In theory, then, a price of $500 is within striking distance, especially given how tightly the company's valuation is tied to the price of Bitcoin.
But as we've seen in the early stages of 2025, the long-anticipated Bitcoin breakout has yet to happen. In fact, Bitcoin has had a hard time hanging on to the $100,000 price level. The longer that Bitcoin struggles to find its footing, the more questions investors are going to raise about Strategy and its vast Bitcoin holdings.
I think it's a better choice just to buy Bitcoin and not mess around with Strategy. There are fewer moving pieces and less downside risk if the crypto market continues to move sideways or down in 2025.
