Over the past five years, shares of Strategy (MSTR +9.39%) are up by a whopping 3,000%. It continues to be one of the hottest stocks on the market, with a gain of 80% over the past 12 months. And year to date, it's up by a robust 15%, despite the broader market's slide.
And the best may be yet to become. That's because Strategy -- until recently known as MicroStrategy -- remains resolute in pursuing its Bitcoin (BTC +2.81%) buying mission. If the price of Bitcoin goes parabolic, as many expect it to do, then the stock could go parabolic as well.
Strategy's big bet on Bitcoin
Right now, Strategy holds 506,187 Bitcoins on its balance sheet, worth a total of about $45 billion at current market prices. That makes it the largest corporate holder of the crypto in the world, with just over 2.5% of the total circulating supply. For comparison, the U.S. federal government holds 200,000 Bitcoins.
NASDAQ: MSTR
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And Strategy is not stopping there. In October, it announced a major new expansion of the Bitcoin buying program it started back in August 2020. Its "21/21 Plan" calls for the company to raise $42 billion via a mix of debt sales and equity offerings, and use all of it to buy more Bitcoin.
In February, for example, Strategy raised $563 million via a preferred stock offering. And on March 21, it raised another $711 million via a different preferred stock offering.
Seemingly a month does not go by anymore without another new announcement from the company about how it is going all-in on the cryptocurrency. In February, for example, the company shortened its name to Strategy and declared that it was now a "Bitcoin Treasury Company." Its defining corporate mission from here on out is to find new ways to buy and hold Bitcoin.
Where is Bitcoin headed?
Where things get really interesting is when you consider the potential price trajectory of the crypto. One prediction, made by Cathie Wood of Ark Invest, is that Bitcoin could hit a price of $1.5 million by 2030. Right now, it is hovering below $100,000. To make her prediction happen would require a 15x move within the next five years.
That type of rise might sound impossible and outlandish until you consider that Bitcoin has done it before. For example, it made a 20x gain to get from $5,000 to $100,000. And the time that was required? Just over seven years. It hit $5,000 for the first time in September 2017 and hit $100,000 for the first time in December 2024.
Image source: Getty Images.
To speed up the timeline a bit, Michael Saylor, the founder and executive chairman of Strategy, has suggested that the U.S. government commit to buying as much as 25% of the total circulating supply by 2035 for its new Strategic Bitcoin Reserve. At the same time, he is now suggesting that other companies, both big and small, commit to making the token a balance sheet asset. Most notably, in December he urged Microsoft to begin a substantial new Bitcoin buying program.
So the strategy of Strategy is simple. Transform itself into a company that does nothing but buy Bitcoin. Use debt to expand your ability to buy as much of it as possible. Finally, do your best to convince everyone else to buy as much Bitcoin as they can in a bid to increase demand and keep its price moving up. If it all goes according to plan, says Saylor, Strategy will be a trillion-dollar company one day.
What could possibly go wrong?
At some point, alarm bells have probably started ringing for some readers here. Strategy is now almost completely ignoring its core enterprise software business. It's using significant debt to get as much leverage as possible. And it is completely exposed to the price movement of Bitcoin.
CRYPTO: BTC
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If, for any reason, Bitcoin moves lower, or if it remains trapped within a relatively narrow trading band, that could cause enormous financial difficulties for Strategy. If its software business is no longer generating cash flow, then the company might need to start selling some Bitcoin at some point in the future in order to cover operating expenses or financing costs. As soon as the market catches a whiff of that, it could trigger a cascading effect of adverse financial consequences.
Will Strategy go parabolic?
It's hard to argue with Strategy's past stock performance. It has skyrocketed in value, outperforming even Nvidia over the past five years. That's an impressive feat.
But can Strategy go parabolic? It all depends on the price of Bitcoin. If you're holding Strategy stock, you need to be rooting for Bitcoin to hit a price of $1 million as quickly as possible.
