MicroStrategy shares have been traded on the US NASDAQ stock exchange since 1998. Most of the investors of the past remembered the company thanks to the dot-com crisis.

However, since 2020, MSTR has received a “new life” by becoming the owner of a large number of Bitcoin coins. At the end of November 2021, she had 121,044 BTC in her accounts. The total value was $3.57 billion, with an average purchase price of $59,187 per token. Let’s see what this means for investors.

History of the company

 

MicroStrategy entered the market in 1989. Then the founder of the company, Michael Saylor, signed a contract with DuPont to provide consulting services. In exchange, the businessman received $250,000 as start-up capital.

The main product of the company is business intelligence software. McDonald’s was the first major customer. Their partnership with  MicroStrategy began with a $10 million contract.

The initial public offering took place in 1998 and gave a new impetus to the development of the company. Over the next two years, the value of securities increased more than 30 times. In March 2000, quotes exceeded $3,000.

But in the same month, the company announced a revision of its financial statements. This led to a lightning rate drop of 99%. In fact, MicroStrategy shares have ceased to be of value to investors.

For the next two decades, stocks traded in a wide horizontal channel, occasionally approaching the $150–$200 mark. Most likely, this trend would have continued further if the world had not been shocked by the Covid-19 pandemic.

New vector of development.  Photo: Karolina Grabowska / PexelsNew vector of development. Photo: Karolina Grabowska / Pexels

New vector of development

To smooth the situation with the coronavirus, the US government launched the money machine at full capacity. This led to rising inflation and panic in the market. Many investors, trying to save their savings, rushed to find suitable assets.

The founder of MicroStrategy also decided to redistribute free capital. But Michael Sailor preferred not standard protective tools, but “exotic” cryptocurrencies. In particular, he stopped his choice on Bitcoin.

Probably, in pre-pandemic times, such a decision would be considered absurd. However, the extravagant financial policy helped not only save the company’s savings, but also significantly increase them.

At the same time, the management of MicroStrategy was not limited to buying BTC with their own money. After spending most of its available capital, the company issued debt at 0.75%. But the obligations were actually not secured by anything. Despite this, the papers sold out in less than a day.

Will the cryptocurrency help save the company’s money from inflation?

If we consider Bitcoin based on the laws of the market, then its price should grow in the long term. The reason is that the number of coins available for mining is limited in advance. Given that some of the tokens will gradually go out of circulation, the cost of the remaining tokens should naturally increase.

However, it should be remembered that the unprecedented growth of quotes is caused primarily by the hype around the crypto industry. Many investors gain positions under the influence of gambling addiction. At the same time, a sober financial calculation fades into the background.

This situation is very much like a classic “bubble” that will burst sooner or later. As a result, the rash approach of most bidders makes Bitcoin and altcoins extremely risky assets.

The Future of MicroStrategy

When conducting an investment analysis, the company should be considered in two directions. On the one hand, it is still a major IT developer whose products are in demand in the B2B market. However, there are no growth prospects in this area.

Assuming that MicroStrategy gets rid of the cryptocurrency, then the shares are likely to return to around $200. The reason, as mentioned above, is the lack of significant progress in software development.

But still, it is much more logical to consider this organization as a “Bitcoin vault”. If the company continues to build up its BTC holdings, its quotes will be pegged to the “guide” asset.

What if Bitcoin depreciates?  Photo: RODNAE Productions / PexelsWhat if Bitcoin depreciates? Photo: RODNAE Productions / Pexels

What if Bitcoin depreciates?

Most investors in MicroStrategy stocks are worried about the option in which the cryptocurrency will rapidly fall in price. But it is worth noting that even major analytical agencies and banks are talking about the further growth of the industry.

In particular, Standard Chartered Bank predicted an increase in the value of Bitcoin to $100,000 in 2022. And in the long term, the specialists of the financial organization expect to see the price at around $175,000. However, there is no guarantee that reality will live up to expectations.

It is important to understand that in 2021 MSTR is the “twin” of Bitcoin in the US stock market. Any serious drawdown of the cryptocurrency will lead to a sharp decrease in the company’s quotes.

If the fall reaches a “critical level”, then the question of fulfilling credit obligations will arise. In this case, MicroStrategy is highly likely to get bogged down in courts and proceedings. In this scenario, there may be a threat of bankruptcy.

Conclusion

 

As a result, it makes sense to invest in MSTR only as an alternative to the main cryptocurrency. The company’s securities should be considered as a derivative instrument, which is almost 100% dependent on BTC.

It is also worth considering that the popularity of MicroStrategy was due to the high threshold for entering the crypto market for retail investors. However, already in 2021, digital tokens have taken their place among the available financial assets. As a result, there was no need to invest in side and derivative instruments.

Therefore, the long-term prospects for MSTR shares should be considered without unjustified optimism