MicroStrategy Inc. (MSTR) CEO Michael Saylor has become famous – or infamous, depending on how you see it – for replacing the cash on his company’s balance sheet with Bitcoin (BTC).

As of September 30, MicroStrategy said it holds 114,042 BTC worth approximately $7 billion at the current Bitcoin price.

MicroStrategy provides analytics software and services, so the company’s core business isn’t centered around cryptocurrencies. However, because the company holds $7 billion worth of Bitcoin, I’ve seen mainstream financial news stories suggest that MicroStrategy is a way to “play” for Bitcoin exposure.

Let’s take a look at how this “play” on Bitcoin is doing.

In the 14 months since MicroStrategy started loading up its balance sheet with Bitcoin in August 2020, its stock has more or less tracked the BTC price:

Of course, there’s no guarantee this correlation will continue, but so far, the results have been impressive. The stock has outgained the Standard & Poor’s (S&P) 500 index by a factor of 13.5X.

Now compare that to MicroStrategy’s performance in the 14 months prior to the pandemic-caused stock market crash. MSTR rose just 20.6%, not even matching the S&P 500’s gain of 26.4%.

Clearly, Saylor’s Bitcoin buys have made a huge difference.

But before running out and buying MicroStrategy, you need to read this…

MicroStrategy Under the Microscope

MicroStrategy is not a crypto company by trade. It’s an analytics and business intelligence company. The company considers its Bitcoin investments a strategy apart from its primary business.

It’s created an odd dynamic where the Bitcoin part of the business is much larger than the original, legacy business. MicroStrategy’s market cap was just under $1.2 billion before the Bitcoin purchases began. Now it’s valued at $8.4 billion.

MicroStrategy’s analytics business is still recovering not only from the effects of the pandemic on the economy, but revenue had started a steady decline in 2014. It just wasn’t a very exciting stock.

My guess is that, once Saylor got hooked on Bitcoin, he realized it was just the jolt his company needed.

But while Bitcoin has succeeded in multiplying MSTR’s value, the effort has come at a cost.

Saylor has used secured debt, convertible debt, and in June, announced plans to sell $1 billion worth of MSTR shares to finance more Bitcoin purchases. In other words, he diluted shareholders to buy Bitcoin.

And he’s not done.

“We will continue to evaluate opportunities to raise additional capital to execute on our Bitcoin acquisition strategy, which has the potential to offer asymmetric upside to our shareholders,” Saylor told analysts during MicroStrategy’s Q3 earnings call.

Buying Bitcoin with cash is one thing. Even that carries a lot of risk should the price of Bitcoin fall significantly, which it does frequently. But borrowing money to buy Bitcoin adds still more risk.

For now, MicroStrategy stock is tracking Bitcoin because investors impatient for a spot Bitcoin exchange-traded fund (ETF) see MSTR stock as a “good-enough” substitute (along with the flawed futures-based Bitcoin ETF we have now).

But when the SEC does approve a spot Bitcoin ETF, capital will flock to the better product. That will likely cause MicroStrategy stock to trade a discount to the Bitcoin price, similar to what’s happened to the Grayscale Bitcoin Trust this year.

So the short answer is no, MicroStrategy is not the best stock to buy to get exposure to Bitcoin.

The best way to get exposure to Bitcoin is to buy Bitcoin! But I know that many of you are new to the crypto investing space and want to start by dipping your toes in the water.

You have other, better options – and my research says these are your top three choices…

The Three Best Stocks to Buy for Bitcoin Exposure

1. Coinbase Global Inc. (COIN)

Coinbase went public via a direct listing on April 14. It’s is the most popular U.S.-based cryptocurrency exchange – what I like to call the “AOL of crypto.” It’s an ideal on-ramp for new and inexperienced crypto investors, with its transaction fees (the bulk of its revenue) setting the company up as the chief toll collector in this space.

While that revenue stream could eventually face pressure from rivals that charge less, Coinbase recently announced it is testing a subscription service called Coinbase One that would offer zero-fee trading and prioritized phone support. The subscription strategy is essentially an insurance policy against the possibility of reduced fees in the future.

The Coinbase stock price does not exactly track the price of Bitcoin, but it does generally follow it. After a rocky summer, Coinbase stock found its footing in October and is trading at about $344 per share. The one-year consensus price target is $382.65. But if COIN captures the lion’s share of the retail trade expected to enter this sector over the next few years, the price should go much higher.

2. Grayscale Bitcoin Trust (GBTC)

If you’re interested in getting exposure to Bitcoin that nearly exactly tracks its price, The Grayscale Bitcoin Trust may be for you.

GBTC is a hedge fund, not a stock, launched in 2013 as a way to create a backdoor Bitcoin ETF that did not require Securities and Exchange Commission (SEC) approval. At first, only accredited investors could buy shares, but after a 12-month period, those early investors could sell shares to anyone on the over-the-counter (OTC) market. Because of that loophole, retail investors can buy GBTC through their brokerage account.

Like a commodity ETF, Grayscale does own Bitcoin to back the shares. But it suffers from a disadvantage: It can’t create and destroy shares as easily as an SEC-approved ETF can. Now that the SEC has approved futures-based ETFs, Grayscale has applied to the SEC to have GBTC converted to a full-fledged spot-based Bitcoin ETF, which would be a big deal.

For most of this year, GBTC has traded at a 15% to 20% discount to the actual BTC price. But if the conversion to an ETF succeeds, that discount will likely disappear – with anyone who holds GBTC shares pocketing the extra gain.

3. Voyager Digital (VYGVF)

Like Coinbase, Voyager is a U.S.-based crypto brokerage founded by veterans of companies like E*TRADE and Lightspeed Financial. It also offers high interest rates (up to 12%) on the crypto that users keep in its smartphone app.

While Voyager gets less attention than Coinbase or Robinhood Markets Inc., it’s a strong competitor. In the September quarter, Voyager generated more revenue from crypto trading than Robinhood ($60 million vs. $51 million). Voyager’s number of verified users more than doubled from 1 million in April to 2.15 million in September.

As a crypto brokerage, Voyager’s stock price will loosely track the Bitcoin price. But it has other possible catalysts. For one thing, it is seeking a listing on the Nasdaq, which would surely boost the stock price. Voyager is also a potential acquisition target – its crypto business is a convenient bolt-on for a major name like Charles Schwab Corp. or Fidelity Investments.

The one-year target on this stock is $25.61, a 50% gain from the current price of $17. But Voyager has the potential to rise 4X to 5X over the next two or three years.

Now, for those of you who are just getting started with cryptocurrency investing, I also wanted to share my step-by-step guide on setting up a Coinbase account that will allow you to trade a lot of the coins you hear myself or Alternative Wealth Daily Chief Crypto Strategist Nick Black talk about.

You can access that guide right here.

Take care,

David Zeiler

Advisory Board Member, Alternative Wealth Daily


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