To The Moon

While we have seen $MicroStrategy(MSTR)$ stock price go higher in last week we might wonder why this is happening, so we are also seeing traders and investors analyzing MicroStrategy’s (MSTR) stock price behavior relative to bitcoin.

In this article, I would like to look at how the beta of MSTR relative to Bitcoin perform over several distinct time frames, ranging from the launch of spot ETFs to when MSTR started buying bitcoin in 2020.

This might help us to shed some light on whether MSTR could be on path to $300.

What is Beta?

Beta is a value that describes how the price of a stock moves compared to the overall market, specifically how their volatilities compare over a given period. A beta of 1 means the stock's price tends to match the market. If the market goes up or down by 1%, the stock is also expected to go up or down by approximately 1%. A beta below 1 means the stock is less volatile than the overall market; greater than 1 means it is more volatile.

In our current analysis, we measure the “commodity beta” of MSTR relative to the underlying asset of bitcoin. This is similar to analyzing the stock price of a gold miner relative to the price of gold. Ideas for further analysis include analyzing the beta for other bitcoin related investments like chip manufacturers or the price of ASICS relative to bitcoin.

MSTR’s Beta and Gains to Bitcoin Since Buying Bitcoin

Since MicroStrategy started buying bitcoin in August 2020, the beta has been remarkably close to 1, specifically 1.00007.

As seen below, their price action is very similar. MSTR has gained 236.58% to bitcoin’s 49.67%, however, their volatility over that period results in a near perfect beta.

MicroStrategy (MSTR) Beta Using Period - Yearly

When we looked at the period for last year, which the period encompasses pre-Blackrock ETF filing (June 2023), as well as the pre-approval speculation period and the time since launch.

The resulting beta for this period is approximately 1.15, indicating that MSTR was positively correlated and slightly more volatile than Bitcoin. One could interpret this as MSTR becoming more volatile in the ETF build-up. The hype likely drove investors into MSTR as a way to front-run the approval and launch.

Beta Remains Stable Though Higher Recently

If we looked at how MSTR have performed since the ETFs launched, it was 10 months ago, so over this period, MSTR's beta was calculated at approximately 1.14, a result quite close to the 1-year beta.

Though we are expecting a higher Beta but it is pretty close.

MicroStrategy Since Launch Of Spot ETFs in January 2024

Since the launch of spot ETFs on 11 January 2024, the beta of MSTR relative to Bitcoin stands at a remarkable 1.41. This means that for every 1% movement in Bitcoin's price, MSTR's stock price tends to move by 1.41% in the same direction, on average.

This period of higher volatility, caused by reverberations of pre-approval speculation, should wane over the next 6-12 months until back in line with the long-term average of 1.1.

We could be seeing some volatility for MSTR but that should be good one as Bitcoin continued to create new highs as rate cut decisions formed up.

MicroStrategy (MSTR) Business Generate Stable and Profitable Venture

The core software business of MicroStrategy, which specializes in business intelligence, mobile software, and cloud-based services, has historically been a stable and profitable venture.

Net revenue for FY 2023 was $504 million, forming a solid foundation that is often overshadowed in stock valuations by the more headline-grabbing Bitcoin holdings. This dual nature of the company’s assets might offer a form of natural hedge against extreme tail-risks to bitcoin, like regulatory changes, development and scaling problems and macroeconomic factors.

Incorporating the value of the underlying software business into the company's overall valuation poses a unique challenge. Several people are doing analysis on this with mixed results. An operational valuation of the company plus bitcoin holdings shows shares at a significant $60 discount, while a fully diluted valuation only shows a discount of $1 per share.

Summary

While we as investors evaluating MicroStrategy need to consider a complex interplay of factors. On one hand, there's a profitable, established software business with a strong revenue stream. On the other, there is a significant exposure to Bitcoin, bringing with it a different risk-return profile characterized by high volatility.

If we were to consider both factors, as MSTR business continue to generate profits and Bitcoin continued making new highs, we could see MSTR reaching $300 in near term.

Balancing these aspects is key for investors looking to understand the full scope of MicroStrategy's investment potential, beyond the often singular focus on its Bitcoin holdings.

If you are looked to have diversified exposure to Bitcoin, we can look at to add exposure broadly to the bitcoin space can use MSTR to offset lower beta stocks related to bitcoin.

Appreciate if you could share your thoughts in the comment section whether you think MicroStrategy could reach $300 given its strong business growth and Bitcoin is also making new highs.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.