Investing in MicroStrategy (MSTR) five years ago would have turned a $40,000 investment into an incredible $1.08 million today. But could you repeat that impressive feat by investing in MicroStrategy in 2024? While the company has had a remarkable run, making a million dollars from a $40,000 investment again might be harder than it looks.
In this post, we’ll dive into why MicroStrategy’s Bitcoin strategy has been so successful and whether it’s still a viable path to riches. We’ll also take a look at the risks, rewards, and the future of this tech-driven Bitcoin investment firm.
The Power of MicroStrategy’s Bitcoin Strategy
MicroStrategy has long been known as a data analytics company, but in 2020, the firm pivoted dramatically by converting almost all of its cash reserves into Bitcoin (BTC). This bold move effectively turned MicroStrategy from a traditional tech company into a Bitcoin-focused investment entity.
The result? A staggering 93.5% annual return over the past five years, far surpassing the performance of Bitcoin and the broader S&P 500 market index. At the height of this performance, a $40,000 investment in MicroStrategy would have been worth over $1 million.
But is it realistic to expect these returns to continue?
The Challenge of Repeating the Past 5 Years
It’s important to note that MicroStrategy’s recent performance is not the norm for most companies, and historical returns don’t guarantee future success. To see the kind of results that would make a $40,000 investment turn into $1 million again, you would need a compound annual growth rate (CAGR) of 93.5% for another five years.
Achieving this level of growth is incredibly unlikely for several reasons:
- Market cap: With a current market cap of around $92 billion, MicroStrategy would need to multiply by 25 times to reach a $2.3 trillion market cap—something only a handful of companies have ever done.
- Bitcoin’s future growth: The $2 trillion market cap of Bitcoin plays a significant role in MicroStrategy’s growth. For MicroStrategy to continue increasing at such a rapid pace, Bitcoin’s market cap would also need to grow substantially.
Even if Bitcoin reaches $100,000 per coin again, doubling the price will not be enough to achieve the same results MicroStrategy saw in the past. That’s a huge ask in an unpredictable market.
Realistic Expectations for Future Returns: A More Modest Approach
While it’s unlikely that MicroStrategy will continue to double its value every year, a more modest growth strategy could still result in impressive returns over the long term.
Let’s assume MicroStrategy can maintain a 14% annual growth rate, which is slightly above the S&P 500’s long-term average. Under this assumption, your $40,000 investment would grow to about $1.06 million by 2049. Although this isn’t the “get rich quick” scenario some investors dream of, it’s still a healthy return that outpaces the average market growth.
Accelerating Your Returns: Strategies for Boosting Investment Growth
There are several ways you can increase the chances of turning your $40,000 into a million dollars with MicroStrategy stock:
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Add more capital: Instead of just investing $40,000, you could increase your position over time. Even a modest, regular contribution would shorten the time it takes to reach your million-dollar goal.
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Leverage stock issuance: MicroStrategy is aggressively raising capital through debt and equity sales to buy more Bitcoin. This strategy could accelerate its growth and lead to greater returns, assuming Bitcoin’s value continues to rise.
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Consider dividends: Although unlikely in the near future, MicroStrategy may decide to pay out dividends as part of its growing role as an asset manager. This could provide an additional source of growth, especially if you reinvest the dividends back into stock.
The Risks of Leveraged Bitcoin Buying: High Reward, High Risk
Investing in MicroStrategy today is akin to purchasing Bitcoin through a leveraged exchange-traded fund (ETF). This means that MicroStrategy’s stock is more volatile than many traditional investments, and while the potential for high returns is significant, the risks are equally high.
A sharp price correction in Bitcoin could wipe out a large portion of the company’s value, potentially dragging down MicroStrategy shares. For this reason, this investment strategy is speculative and not for the faint of heart. Only those who are comfortable with volatility and risk should consider investing heavily in MicroStrategy at current prices.
Other Millionaire-Making Investment Strategies
While MicroStrategy’s Bitcoin gamble may sound appealing, it’s important to remember that high-risk, high-reward investments are not the only way to build wealth. Here are some alternatives that could help you achieve long-term financial success without betting everything on a volatile market:
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Index funds and ETFs: If you’re seeking stable, long-term growth, investing in low-cost index funds or ETFs could be a better choice. These options offer diversification and typically deliver consistent returns without the extreme volatility of individual stocks.
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Real estate investment: Another long-term wealth-building strategy is real estate. By purchasing properties that appreciate over time and generating rental income, you can build wealth while enjoying tax advantages.
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Building your own Bitcoin position: If you believe in Bitcoin’s future, you could bypass MicroStrategy and buy Bitcoin directly. This way, you’d avoid the risk associated with the company’s financing strategy, while still benefiting from Bitcoin’s price increases.
Conclusion: Is MicroStrategy Still a Path to Millionaire Status?
In conclusion, while MicroStrategy’s Bitcoin strategy has been incredibly profitable in recent years, expecting the same level of performance over the next five years is highly optimistic. MicroStrategy may still be a strong investment for long-term growth, especially if you’re willing to take on significant risk. However, for those looking for more stability, index funds, real estate, or directly investing in Bitcoin may offer a safer path to financial success.
If you’re in it for the long haul and willing to be patient, MicroStrategy could still offer a solid return. But for those who want less volatility and faster wealth-building, other strategies might better suit your goals.
Relevant Links for Further Reading
- MicroStrategy: Bitcoin and its Role in Company Strategy
- Bitcoin: The Next Big Thing in Crypto?
- Compound Annual Growth Rate: What It Is and How to Use It
- The Risks of Leveraged Investments
- How to Build Wealth with ETFs
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