What happened
Shares of MicroStrategy (MSTR 2.97%) soared on Tuesday as the price of popular cryptocurrency Bitcoin (BTC 1.42%) spiked higher. As of noon EST, MicroStrategy's stock was up 14%. For its part, Bitcoin is up about 7% over the past 24 hours, according to CoinDesk.
So what
MicroStrategy held over 91,000 Bitcoins on its balance sheet as of March 5. As of this writing, the price of Bitcoin is around $54,200 each, placing the total value of MicroStrategy's holdings at over $4.9 billion. Just for context, the company acquired its Bitcoin for just under $2.2 billion.
Image source: Getty Images.
Now with a market capitalization under $7 billion, it's clear the market is only assigning small-cap stock value to MicroStrategy's actual business -- the majority of the market-cap value is tied to the price of Bitcoin. Therefore, on days like today when Bitcoin is surging, MicroStrategy's stock soars along with it. On other days, the reverse is true.
Now what
After listening to MicroStrategy's management over the past several months, I think it's safe to say that the company will continue holding and even acquiring more Bitcoin for the foreseeable future. Therefore, if you're a shareholder, you're accepting the volatility risk that comes with this strategy.
Furthermore, if you understand why MicroStrategy stock is volatile and you accept this, then there's nothing you need to do on days like today. Of course, that's true of most stock moves. Business fundamentals typically don't change drastically overnight, giving us the luxury of patiently allowing our stocks to create value over the long haul.
