The inventory of the corporate now generally known as Technique (MSTR) — previously MicroStrategy — spent nearly all of 2024 hovering. The explanation: It’s a technique to play Bitcoin. The corporate purchased bitcoins, purchased extra, issued inventory and debt to purchase much more, and in 2025 issued most well-liked inventory to purchase nonetheless extra. Technique is way much less just a few companies below a single banner than only a means to play Bitcoin.
However that construction and the best way CEO Michael Saylor has run the corporate have created a wide range of dangers for buyers in Technique. Listed below are three of the largest dangers of shopping for this Bitcoin proxy.
3 big dangers for Technique buyers
Beneath are three of the biggest dangers for Technique and why buyers should be additional cautious. If you happen to’re contemplating an funding in Technique, you have to be conscious of the potential pitfalls and think about talking with a monetary advisor.
1. Technique’s market cap dwarfs its web asset worth
Maybe the obvious and important threat to buyers is that the full worth of the corporate’s inventory, its market cap, is price vastly greater than the online asset worth of the corporate.
The online asset worth of Technique was $43.72 billion as of year-end 2024, after adjusting for the honest market worth of the corporate’s Bitcoin holdings. That compares to a complete market capitalization of $71.2 billion on the shut of the yr — an overvaluation of round 63 %. To place it one other approach, buyers are paying about 63 % extra to personal Bitcoin by way of Technique inventory than shopping for the cryptocurrency or a Bitcoin ETF straight. The transfer makes little sense.
Technique administration are nicely conscious of the disconnect and are taking benefit in a approach that advantages shareholders. The corporate really has an authorization to promote the inventory and is utilizing it to purchase extra bitcoins. The corporate issued $15.1 billion in inventory within the fourth quarter and an extra $2.4 billion by way of Feb. 2, 2025. It could possibly increase an extra $4.3 billion by way of inventory gross sales.
These proceeds are then plowed again into purchases of Bitcoin. Within the fourth quarter alone, the corporate purchased $20.5 billion in bitcoins and bought extra within the first quarter of 2025.
In impact, Technique is promoting its overpriced inventory and shopping for comparatively underpriced bitcoins. It is sensible to reap the benefits of shareholders who’re keen to overvalue the inventory after which to buy extra of what they’re overvaluing, the bitcoins. And the apply ought to proceed, for the reason that firm is growing the full variety of shares it could difficulty.
But when Technique can’t proceed to promote overpriced inventory to proceed its Bitcoin shopping for binge, what occurs to the inventory then? If one thing can’t proceed, it will definitely received’t.
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2. Technique is strapped with debt and its companies lose cash
Technique has issued convertible debt to bootstrap its technique to a excessive inventory worth. With convertible bonds, an organization usually receives a lower-than-average rate of interest and guarantees the bond purchaser to transform the bonds to inventory later, typically at a extra favorable worth. So “converts” will be favorable for corporations that don’t have robust money circulate and that may pay with inventory as an alternative.
Technique has six collection of convertible debt excellent at rates of interest starting from 0 % to 2.25 %. It additionally just lately issued convertible most well-liked inventory, which acts very similar to a bond, however it had to take action at a big low cost, regardless that the preferreds pay a excessive 8 % coupon. The bonds and the preferreds imply that the corporate has to pay curiosity frequently.
However Technique’s underlying enterprise is weak. In 2024, for instance, it generated an working lack of greater than $60 million, not counting write-offs on digital property akin to Bitcoin. But it had curiosity bills for the yr of round $62 million, that means its companies didn’t generate the money to pay its curiosity bills, which had been paid solely from present money or new financing.
And that will get to the guts of 1 weak spot right here: Technique wants entry to capital markets to proceed to fund its development. If the corporate is unable to maintain funding its development, will buyers proceed to provide the inventory its inflated valuation? And if it has to promote bitcoins or inventory to settle up its convertible debt, will it give you the chance to take action at favorable costs? The reply to these questions relies upon available on the market at some future level, and Bitcoin’s volatility makes all of it a lot worse.
3. Bitcoin is inherently risky
It’s not a secret that Bitcoin is risky — that’s inherent to nearly all cryptocurrencies. Cryptocurrencies should not primarily based on the onerous property and money circulate of an underlying enterprise, the best way shares are. As a substitute, the value of cryptocurrencies is supported solely by the demand of merchants who need to purchase them and, ideally, promote them to another person in a while for a revenue. That’s, cryptocurrencies are supported solely by merchants’ sentiment, making them extremely risky.
Mixed with the excessive valuation of Technique — the place the inventory is valued a lot larger than its holdings — the volatility of Bitcoin might destroy the corporate if it had been to fall considerably. In idea, a 1 % decline in Bitcoin’s worth might lead to a 1.62 % decline in Technique’s inventory. If merchants anticipate a decline in Bitcoin, they may attempt to hit the exits on the inventory earlier than issues grow to be a lot worse, given the overvaluation and potential important draw back.
With the extraordinarily risky worth historical past of Bitcoin — it’s plunged in a given calendar yr by greater than 60 % on three completely different events — it’s solely a query of time earlier than it plummets considerably once more. Will that drop be sufficient to wipe out Technique? Solely time will inform.
Backside line
Technique is a scorching inventory play for the second, and if Bitcoin continues to rally, the inventory might proceed to carry out fairly nicely. However not each scorching inventory is price investing in. Take into account consulting with a monetary advisor earlier than making any main funding choices.
Technique should proceed to accumulate extra Bitcoin to justify its valuation, and given the leveraged nature of the inventory, any downturn within the cryptocurrency would ship large shockwaves by way of Technique and different extremely leveraged Bitcoin performs.
Editorial Disclaimer: All buyers are suggested to conduct their very own impartial analysis into funding methods earlier than investing resolution. As well as, buyers are suggested that previous funding product efficiency isn’t any assure of future worth appreciation.
