Joe Raedle
MicroStrategy (NASDAQ:MSTR) is my favorite long-term Bitcoin (BTC-USD) crypto stock because the company holds an enormous amount of BTC on its balance sheet.
The company made headlines when it decided to sell some of its Bitcoin at a loss to reduce its capital gains just before the end of 2022. This is a similar strategy to tax loss harvesting that lots of investors use to reduce their capital gains tax bill.
I’m noticing a lot of haters attacking Bitcoin and calling it worthless despite the fact that Bitcoin is still up over 2,700% over the last 10 years.
Bitcoin has greatly outperformed both the S&P 500 and NASDAQ over the last 10 years but haters continue to call Bitcoin “worthless”.
The charts don’t lie and anyone can see that Bitcoin was a far better investment over the last 10 years than most stocks, ETFs, or mutual funds.
MicroStrategy understands that Bitcoin will become the most important asset of the 21st century and it’s nice to see them HODL despite all of the negative news surrounding crypto.
MicroStrategy Bitcoin Sale Explained
I touched on this topic in the introduction but some investors may not understand exactly why MicroStrategy sold some of its Bitcoin to buy it right back.
According to CoinDesk, MicroStrategy has accumulated 2,500 BTC over the last few months during the crypto bear market. However, the company decided to sell 780 BTC to offset capital gains.
Even though Bitcoin is not regulated by the SEC or government, investors are required by law to pay taxes on any capital gains made from Bitcoin purchases.
If you want to reduce your capital gains then simply HODL Bitcoin and do not sell for a profit. However, MicroStrategy took advantage of the current bear market to sell at a loss while accumulating more Bitcoin in the process.
This is another brilliant move by the company to increase its holdings while decreasing its corporate tax bill.
Michael Saylor Understands Bitcoin is Crucial to the Future of Finance
When Executive Chairman Michael Saylor stepped down as CEO of MicroStrategy, he wanted to focus all of his efforts on Bitcoin instead of managing everything within the company.
The ability to store one’s financial energy on a decentralized blockchain that isn’t controlled by one central bank or government carries enormous long-term value. That’s why MicroStrategy is buying Bitcoin before everyone else understands its intrinsic value.
MSTR Stock Trades Below the Value of Bitcoin on its Balance Sheet
From a fundamental standpoint, MicroStrategy is in a good financial position despite all of the naysayers. The company holds 132,500 BTC worth ~$2.2 billion at current market prices and carries little risk of being margin called on its Bitcoin backed loans.
MSTR stock currently trades at $1.6 billion market cap, which is around $600 million below the total value of Bitcoin on its balance sheet.
The company does still carry nearly $2.45 billion in debt but almost half of that is in the form of convertible bonds that mature in 2027. My guess is that MSTR stock will trade much higher over the next 4 years as long as Bitcoin moves higher over the long term.
With only 9.37 million shares outstanding, I don’t think these convertible bonds will cause too much dilution.
Risk Factors
My biggest concern is that MicroStrategy changes its stance on Bitcoin and offloads its holdings. That’s the only reason I hold MSTR shares in the first place. The company could sell some Bitcoin over time if it needs to but Michael Saylor seems extremely bullish on blockchain technology in the long run.
Another issue is that Bitcoin collapses altogether or another technology replaces it. Too many haters attack Bitcoin for not being a tangible asset like real estate or gold.
What’s Next for MicroStrategy?
MSTR trades at a Prices to Sales ratio of under 4. That’s a big discount from its P/S ratio over the last 52 weeks.
Bitcoin is approaching the next halving cycle in 2024, and I will continue to hold my MSTR shares in my SEP IRA. If you have been holding MSTR stock through the crypto bear market, then you are obviously bullish on Bitcoin in the long run. No need to change your strategy now.
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