Is MicroStrategy Stock Better than a Spot Bitcoin ETF?

Author: Ben Strack, Blockworks; Compiled by: Songxue, Golden Finance

While a U.S. spot Bitcoin ETF may reduce the trading premium of MicroStrategy shares relative to BTC, some industry observers say the The company's shares will continue to offer certain advantages over such funds.

Some investors have historically viewed shares of business intelligence company MicroStrategy as a proxy for Bitcoin because the company owns a large amount of the asset.

As of December 26, MicroStrategy is the largest publicly traded holder of Bitcoin, with a total holding of 189,150 BTC.

However, last week’s historic launch of a spot Bitcoin ETF provides investors with a more convenient way to acquire Bitcoin more easily.

TD Cowen analyst Lance Vitanza said earlier this month that he expected the U.S. Spot Bitcoin ETF to significantly increase the price of Bitcoin and compress MicroStrategy’s premium relative to Bitcoin trading, which It will lead to "a substantial increase in MSTR's share price."

Vitanza added at the time thatMicroStrategy stock’s trading premium relative to Bitcoin could fall from about 40% to between 15% and 25%.

As of market close last Thursday, MicroStrategy's stock price had fallen 18.5% in the past five days. At the time, Bitcoin’s price fell by approximately 4.5% during the period.

Vitanza and research associate Jonnathan Navarrete wrote in a January 16 research note that although the launch of the ETF has caused MicroStrategy’s Bitcoin premium to decline, the company’s stock still has unique advantages.

"One of the primary benefits is that shareholders will not have to pay management fees; all the company's expenses are covered by the cash flow associated with running its enterprise software business," TD Cowen analysts wrote. "In fact, even after deducting all the company's expenses, the company's free cash flow actually acts as a 'reverse charge', paid not by shareholders, but to shareholders."

TD Cowen Values ​​MicroStrategy's operational software business at $1.25 billion, Vitanza and Navarrete noted. MicroStrategy's software licensing and subscription services generated $45 million and $21 million, respectively, in the third quarter.

Dan Weiskopf, co-portfolio manager of the Amplify Transformational Data Sharing ETF (BLOK), noted thatMicroStrategy’s recent pullback in stock prices is “natural” as it more than doubled Bitcoin’s gains last year.

He pointed out that while he thinks MicroStrategy founder Michael Saylor and his team have been smart in managing the capital structure and buying more Bitcoin, the spot Bitcoin ETF’s The launch provides investors with more options.

“The question is whether investors who bought Bitcoin through MicroStrategy are willing to sell and pay [capital gains] to buy the ETF,” Weiskopf said. "Right now, the near-term valuation of enterprise value looks interesting to us, assuming 190,000 Bitcoin at current prices and cheap debt."

The company launched a product in October , designed to help organizations incorporate generative AI into their data applications.

Weiskopf added: "My questions about MicroStrategy are where their software business is going and whether there are real AI enablers in the stock."

Vailshire Capital Management Founder Jeff Ross said on Thursday’s X that he believes Bitcoin miners and MicroStrategy could outperform BTC in the coming bull run.

"Personally, as a client, I've stuck with Bitcoin miners, but more importantly, I've stuck with MicroStrategy," Ross said. “I think [Saylor] does a good job of knowing when his stocks are overpriced and allocating more shares to the market and then taking the cash and buying Bitcoin. He knows... when to pay down debt at low interest rates to Buy more Bitcoin."

MicroStrategy said in August that it had entered into sales agreements with Cowen and Company, Canaccord Genuity and Berenberg Capital Markets to sell up to $750 million to one or more of the entities. stock. Chief Financial Officer Andrew Kang said the company could use the proceeds for "general corporate purposes," including buying more Bitcoin.

Vitanza and Navarrete said in a Jan. 16 research note that they ultimately expect any future contraction in the company’s premium relative to Bitcoin to be offset by increases in BTC prices.

Segment watchers say they expect the price of Bitcoin to rise as adoption of spot Bitcoin ETFs coincides with the next Bitcoin halving.

They added: "We believe that a substantial premium will continue to be justified given MicroStrategy's lack of management fees, Bitcoin appreciation... use of smart financial leverage and downside protection."