Shares of Microstrategy (MSTR 3.38%) rose as much as 24.5% this week, according to data from S&P Global Market Intelligence. The business intelligence specialist, which has converted nearly all of its cash reserves into Bitcoin (BTC 1.57%) tokens, reached that peak on Wednesday morning, as measured from last Friday's closing price. Of course, Bitcoin followed a similar trajectory and reached a 19-month record price of $35,116 just before noon Eastern time on Wednesday.
Microstrategy stock was up about 16% for the week as of midday Friday.
Unpacking the forces behind this week's jump
It's no surprise to see Microstrategy's stock chart showing a close match with Bitcoin's pricing trends. The company still runs a successful and profitable business intelligence operation, but its market value depends almost entirely on Bitcoin nowadays.
Microstrategy held 158,245 Bitcoins on its balance sheet as of Sept. 23. The company has spent $4.68 billion on these digital coins and continues to add more. Microstrategy continues to pour its incoming cash flows into more cryptocurrency buys -- while taking out loans and selling more stock in order to finance even more Bitcoin purchases.
As a result, former CEO and current Chairman Michael Saylor looks like a genius when Bitcoin prices are trending up. He also attracts plenty of criticism when the crypto market is headed in the opposite direction. Right now, his company shows an effective return of 14% on its reported Bitcoin investments, and the up-to-date value of those coins accounts for 94% of the stock's total market cap.
So Microstrategy has essentially become a proxy for owning Bitcoin directly. The two charts look very similar in the long run, dating back to the start of the Bitcoin strategy three years ago:
And Bitcoin has seen its fair share of good news recently. Above all else, court rulings are pushing the Securities and Exchange Commission (SEC) toward considering the approval of exchange-traded funds (ETFs) based on the spot price of Bitcoin tokens. These funds would presumably inspire deep-pocketed investors and financial institutions to build Bitcoin positions with an extra layer of regulatory protection in the ETF structure. More buying of an asset with limited supply equals higher prices, at least in theory.
That's why Bitcoin is up 19% this week and Microstrategy stands just behind that jump with a 16% gain as of this writing on Friday afternoon.
The road ahead: All Bitcoin, all the time
The company is working hard to boost the value of its principal business operations, with several artificial intelligence (AI) products and a big-ticket AI partnership with software giant Microsoft (NASDAQ: MSFT) announced in the last three months. But Microstrategy's annual revenues add up to roughly $500 million, which is about one-tenth the value of that all-important Bitcoin pile. In other words, the Bitcoin commitment is worth a full decade of Microstrategy's revenue. It's not easy to move that huge needle with such a limited stream of core-business sales.
The fundamental idea is to marshal and grow the Bitcoin collection until the potential for substantial value growth fades out, and then use the resulting hoard of digital cash to boost the business to new heights. But it's unclear at what time or what Bitcoin price Microstrategy would be willing to spend any of its digital wealth on acquisitions, new business ideas, and other money-making operations.
And that's why this stock probably will continue to track Bitcoin's dips and jumps for the foreseeable future. If you want to own some Bitcoin but your stock brokerage doesn't offer cryptocurrency trading, Microstrategy can serve as a fairly effective substitute for the real thing.
