Right now, crypto investors are laser focused on Bitcoin (BTC -2.42%). That's fair enough. The recent approval of the new spot Bitcoin ETFs has made Bitcoin even more popular than it already was.
But if you expand your focus, there are several stocks that stand to benefit from any future gains in Bitcoin. The one that's on my radar right now is MicroStrategy (MSTR 3.38%). That might sound strange, given that MicroStrategy is an enterprise software company. But if you look under the hood, you'll see why this stock could skyrocket 100% or more this year.
MicroStrategy as a Bitcoin proxy stock
The first thing you need to know about MicroStrategy is that it holds a lot of Bitcoin on its balance sheet. And I mean a lot. After a recent buying spree at the end of 2023, MicroStrategy now holds 189,150 Bitcoins. That ranks first among all publicly traded companies, and it's not even close. At Bitcoin's current price of $42,500, those holdings are valued at approximately $8 billion.
Image source: Getty Images.
If you compare the company's overall market cap ($6.5 billion) to the value of its Bitcoin, then it becomes immediately obvious just how leveraged MicroStrategy is to the price of Bitcoin. The Bitcoin holdings are worth more than the company itself! In fact, some investors refer to MicroStrategy as a Bitcoin proxy stock because, for the past year, the stock has essentially been just a way to get access to Bitcoin without actually buying Bitcoin. As a result, over the past 12 months, MicroStrategy is up more than 100%.
Bitcoin proxy stock or Bitcoin ETF?
But there's just one problem. The approval of the new spot Bitcoin exchange-traded funds (ETFs) in January 2024 has completely shifted the narrative. The very same investors who once used MicroStrategy as a proxy stock can now invest in Bitcoin ETFs instead. Theoretically, these Bitcoin ETFs will do a much better job of tracking the price of Bitcoin. And, thus, they could eventually make MicroStrategy less appealing to investors.
As evidence of this, the price of MicroStrategy fell by 20% in just the first 48 hours after Bitcoin ETF approval. For the year, MicroStrategy is down 30%. On top of all that, former MicroStrategy CEO (and current executive chairman) Michael Saylor says that he is planning to sell off 315,000 shares in the company worth over $200 million between now and April. So that should put downward pressure on the price of MicroStrategy as well.
Will Bitcoin go to $100,000?
But there might be two very good reasons to buy the dip on MicroStrategy. For one, investors appear to be ignoring completely the fact that MicroStrategy is actually an enterprise software company. As noted above, they are ascribing zero value to the company's core business operations (which includes artificial intelligence- and business intelligence-related software solutions), and instead simply valuing MicroStrategy as a Bitcoin proxy. So that's one additional source of value for MicroStrategy.
Moreover, there's the future price of Bitcoin to consider. The Bitcoin ETF is just the first catalyst for Bitcoin this year. The second major catalyst -- the upcoming halving event -- is arriving in April. In three previous halving cycles, the price of Bitcoin has exploded, so investors are expecting the same to happen this year as well. That partially explains why Saylor plans to sell off all those company shares by April: He needs the money to invest in more Bitcoin before it goes completely parabolic.
Admittedly, this is a very risky strategy, but it's so bold it just might work. According to a growing number of influential voices on Wall Street, the price of Bitcoin could top $100,000 by the end of the year. Thus, by extension, the value of all that Bitcoin on the balance sheet of MicroStrategy should also double. And that means the market cap of MicroStrategy should also double.
Before you buy MicroStrategy
Just keep in mind that investors have a number of different ways to get access to Bitcoin. They can buy it directly, via a cryptocurrency exchange such as Coinbase Global. They can buy it indirectly via a futures-based Bitcoin ETF. They can buy it indirectly via a spot Bitcoin ETF. And, finally, they can buy it indirectly via an investment in a Bitcoin proxy stock such as MicroStrategy.
Your risk-reward profile will likely determine which strategy makes the most sense for your portfolio. For example, investment giant Vanguard Group has said that it would not be offering the new Bitcoin ETFs to its customers. Instead, (drum roll, please) it will be loading up on MicroStrategy.
For me, that's a pretty convincing argument that Bitcoin proxy stocks such as MicroStrategy will continue to perform well in 2024. You get indirect access to Bitcoin, plus the additional value from the underlying operations of the company. There is likely to be quite a bit of volatility along the way, so just be sure to buckle up if you plan on adding to your MicroStrategy position this year.
