MicroStrategy’s Premium Over Bitcoin Holdings: Is It Sustainable?
MicroStrategy (MSTR) has long been a high-stakes bet for those looking to invest indirectly in Bitcoin through the stock market. But with the company trading at a 300% premium over its Bitcoin holdings, many are beginning to question: can this valuation hold? Recent research from Steno Research suggests otherwise. With spot Bitcoin ETFs and options opening new, more accessible avenues for investors, this MSTR premium may be on thin ice.
Let’s break down what this means for MicroStrategy and Bitcoin enthusiasts in 2024.
Why Does MicroStrategy Hold Such a Premium?
First off, MicroStrategy has accumulated a massive Bitcoin stash—over 252,220 BTC, valued at roughly $17.3 billion at current prices. This makes it the largest corporate Bitcoin holder, effectively becoming a “public Bitcoin ETF” before actual spot Bitcoin ETFs were approved. Investors have been willing to pay a hefty premium for MSTR stock, using it as a vehicle to access Bitcoin exposure without directly buying BTC.
But according to Steno Research, this model might be at its peak. Now, with the launch of spot Bitcoin ETFs, investors can get that same exposure without paying MicroStrategy’s substantial premium. Steno Research analyst Mads Eberhardt expects the premium to shrink to 200% or less as spot ETFs and options trading become the new norm for Bitcoin investors.
Spot Bitcoin ETFs: A Game Changer for Bitcoin Investors
Let’s address the elephant in the room: spot Bitcoin ETFs. Their arrival has created a ripple in the crypto investment landscape, presenting a simpler and more cost-effective way for investors to gain Bitcoin exposure. Previously, MSTR was a top choice for institutions and individuals looking to avoid crypto exchanges, but now, ETFs allow direct investment in BTC without exposure to MicroStrategy’s underlying business risks.
Here’s why ETFs are a game-changer:
- Direct Bitcoin Exposure: Spot ETFs hold actual BTC, not proxies or futures, giving investors a clearer path to Bitcoin’s price movements.
- Reduced Risk: With ETFs, investors avoid the volatility tied to MicroStrategy’s business model and its dependency on BTC price alone.
- Lower Premiums: ETFs operate without the substantial markups seen in MSTR shares, giving investors a more straightforward and economical route to BTC.
MicroStrategy’s Premium vs. Bitcoin ETFs: What’s at Stake?
MicroStrategy has managed to maintain an inflated premium by leveraging Bitcoin as a central element of its balance sheet. But Andreas Steno Larsen, CEO of Steno Research, cautions that with the rise of ETFs and a favourable regulatory landscape—especially if a Bitcoin-supportive administration comes to power in the U.S.—investors may start pulling back from MSTR. This “unsustainable” premium might shrink as ETFs absorb market demand.
There’s a strong precedent for this. During the 2021 bull market, MSTR’s premium dipped below 200% as Bitcoin’s price surged and investment options diversified. Steno’s analysis suggests a similar trend may unfold in 2024. For MicroStrategy to sustain this high valuation, it would need substantial buying pressure beyond that created by Bitcoin’s own rise.
What Do ETFs Mean for MicroStrategy’s Bitcoin Strategy?
MicroStrategy’s strategy has been to accumulate Bitcoin aggressively, seeing it as a long-term store of value. However, as ETFs capture investor interest, MSTR’s reliance on Bitcoin could backfire. Instead of an exclusive route for Bitcoin exposure, MSTR could become a riskier play compared to the simplicity of ETF holdings.
So, what could happen?
- Reduced Investor Demand for MSTR shares, driving the premium closer to a fair valuation.
- Increased Pressure on MicroStrategy to justify its strategy, especially if Bitcoin’s price becomes volatile.
- Shift to ETFs as the preferred method for institutions and retail investors to gain Bitcoin exposure.
Real-World Impact: Bitcoin ETFs Hold Over 900,000 BTC
Data from CryptoQuant shows that US investors have amassed approximately 930,000 BTC via spot Bitcoin ETFs. This represents 4.9% of the total Bitcoin supply—and it’s only increasing. The more BTC held in ETFs, the less demand there is for alternatives like MicroStrategy stock, which could push MSTR’s premium down even further.
And with global regulatory advancements, particularly in countries with increasing Bitcoin adoption, the ETFs’ influence will likely continue to grow. ETFs are becoming the more straightforward choice, offering investors a chance to avoid MSTR’s inflated valuation while still participating in Bitcoin’s growth.
Steno Research’s Outlook on MicroStrategy’s Premium
Steno Research’s view on MicroStrategy’s premium might seem pessimistic, but it highlights a real question: if ETFs are cheaper and more accessible, why would investors choose MSTR? As Bitcoin’s price rises, ETFs provide a straightforward avenue for exposure that aligns more with the actual price of BTC, rather than the price of MSTR.
For MSTR to maintain its premium, it would likely need:
- Ongoing Bitcoin Bull Market: Consistently rising Bitcoin prices are essential for MSTR’s valuation to remain high.
- Limited ETF Alternatives: Should ETFs lose momentum, MSTR could regain its exclusivity as a Bitcoin investment vehicle.
- Regulatory Setbacks for ETFs: If regulations stall, MSTR could benefit as the remaining large-scale Bitcoin proxy.
Key Takeaways for Investors
If you’re currently holding MSTR or considering it, keep these insights in mind:
- ETFs Are a Cost-Effective Alternative: They provide direct Bitcoin exposure without the 300% premium.
- MicroStrategy Is Riskier Than Direct Bitcoin Exposure: Owning MSTR means exposure to both Bitcoin and MicroStrategy’s underlying business risks.
- Premium May Decline: If Bitcoin continues to rise and ETFs remain popular, MSTR’s premium could fall.
So, while MicroStrategy is an interesting stock, investors might be better served by diversifying into ETFs if they’re solely interested in Bitcoin’s potential.
Wrapping Up
MicroStrategy’s 300% premium has been impressive, but as Bitcoin ETFs enter the scene, that valuation may be hard to maintain. With more direct and accessible paths to Bitcoin, MSTR’s appeal could diminish, potentially offering a lower-premium alternative for investors seeking a mix of corporate exposure and BTC’s growth.
Learn More:
- Bitcoin ETFs – ETFs Explained
- MicroStrategy – MicroStrategy Bitcoin Investment
- CryptoQuant – CryptoQuant Data Analysis
- Spot Bitcoin ETFs – Introduction to Spot Bitcoin ETFs
- Steno Research – Steno Research Insights
