This week, Strategy Stock is experiencing a decline in value.
Strategy's shares, formerly known as MicroStrategy (MSTR), took a tumble this week, losing around 15%, as per S&P Global Market Intelligence data. The reason behind this dip? You guessed it, Bitcoin. The crypto investment company's slide mirrored the plummeting price of Bitcoin, as it ramps up its convertible notes and debt offerings to fuel more Bitcoin purchases.
Strategy's shares have seen a significant surge of 163% over the past year, following Bitcoin's price trajectory. But with the cryptocurrency taking a nosedive, investors are jumping ship from Strategy stock, too. Let's break down why Strategy stock took a hit this week and if it's worth considering for your portfolio.
Bitcoin's Tumble and Convertible Notes
MSTR
Remember when Strategy made a bold move and restructured its corporate strategy to stack Bitcoin on its balance sheet? This gamble paid off big time, given Bitcoin's price increase. However, Strategy's fortunes are now deeply entwined with Bitcoin's. When Bitcoin's price dives, Strategy stock does, too. And Bitcoin's value has dropped 20% in the last month, with Strategy shares dropping 25% in response.
To fund its Bitcoin purchases, Strategy has piled up on debt and issued billions worth of common stock. In February, Strategy sold $2 billion worth of 0% interest rate convertible notes due in 2030, providing the company with cheap financing to acquire more Bitcoin. While it isn't free money, it certainly adds a bit more risk to Strategy's overall balance sheet.
S&P Global Market Intelligence. The
More importantly, Strategy has been consistently selling common stock using an ATM offering. In the last three months of 2024, Strategy sold an astounding $15.3 billion worth of cellar-dwelling shares to buy more Bitcoin. By the end of 2024, the company had 447,470 Bitcoin in its crypto coffers.
Betting on Strategy Stock
balance sheet, these Bitcoin holdings are worth well less than what Strategy trades for in the public markets. Even after this drop, Strategy has a market cap of $64 billion.
With Strategy's end-of-year Bitcoin stash valued at around $38 billion, its asset worth significantly less than its stock market value. Even with this recent dip, Strategy still carries a hefty market cap of $64 billion.
This means Strategy trades at nearly double the actual value of its Bitcoin holdings, not taking into account its debt liabilities. It's a head-scratcher why someone would choose to buy Strategy stock instead of simply investing in the underlying Bitcoin itself.
cryptocurrency market.
Our advice? Steer clear of Strategy stock, even if you're interested in dipping your toes into the crypto market. After all, the old adage holds true: never put all your eggs in one basket.
- To fund its Bitcoin purchases, Strategy has resorted to issuing convertible notes and selling billions worth of common stock through an ATM offering, as seen in the last three months of 2024.
- Investors are wary of Strategy's stock due to its heavy reliance on Bitcoin, as evidenced by its collapse in response to Bitcoin's 20% price drop over the last month.
- The 'show_benchmark_compare' feature might reveal an interesting comparison between investing directly in Bitcoin and buying Strategy stock, considering the company's significantly higher market cap despite owning Bitcoin worth less than half of its market value.
- In light of Bitcoin's instability and Strategy's high market cap compared to its Bitcoin holdings, the wise investment choice might be to 'invest_in_line_article_pitch' other opportunities, following the principle of diversification to avoid overly relying on a single asset class, like digital currencies.