MicroStrategy’s Bitcoin treasury exceeds cash held by 80% of S&P 500 non-financial companies

The value of MicroStrategy’s massive Bitcoin (BTC) holdings has surpassed what most S&P 500 companies hold in their cash treasuries.

The Nasdaq-listed enterprise software firm purchased an additional 5,050 Bitcoin for about $242.9 million, raising the value of its 114,042 BTC holdings to nearly $5.3 billion. That comes out to be higher than what 80% of non-financial S&P 500 companies hold in their cash coffers, as per data compiled by Bloomberg.

Cash spending up among corporations

MicroStrategy made buying Bitcoin its official corporate strategy in 2020, with its celebrated CEO, Michael Saylor, calling the move a defense against the U.S. dollar’s potential devaluation. Companies like Tesla and Square later copied the strategy to replace a portion of cash reserves with Bitcoin.

On the other hand, firms with lower risk appetites continued to increase their cash holdings. For instance, in the second quarter, non-financial companies on the S&P 500 boosted their treasuries by 12% from a year ago due to escalating uncertainty caused by the COVID-19 pandemic.

Cash holdings by non-financial S&P 500 companies in recent quarters. Source: Bloomberg

Some of those firms — including General Electric, Ford and Boeing — started spending the cash during the ongoing third quarter. For instance, in July, non-financial S&P 500 companies slashed their dollar reserves by $30 billion, or 2%, from a year ago.

At the same time, companies like Amazon and Alphabet (Google’s parent company) were still amassing cash but did little to change overall dollar spending. The total cash stockpiles held by United States corporations fell to $1.52 trillion from $1.55 trillion as they acquired new businesses, bought back shares and increased dividends, Bloomberg data reveals.

Overall, the declining cash holding trend shows that publicly traded companies have become more comfortable with spending their money, led by expectations that the COVID-19 pandemic is almost over.

MSTR gives de facto Bitcoin exposure

Shares of MicroStrategy have surged by almost 359% in the past 12 months, in lockstep with Bitcoin, whose value has surged by 314% in the same period.

Since MSTR appreciation has outpaced Bitcoin’s price growth, some analysts believe that owning shares gives investors easier exposure to the benchmark cryptocurrency market through traditional infrastructure.

MicroStrategy vs. Bitcoin vs. Nasdaq. Source: Ecoinometrics

“It’s no secret that MSTR is being valued above the NAV [net asset value] of coins currently owned, and I don’t think investors are buying it for the legacy business upside,” said analyst Kingdom Capital.

“The [clearest] reason I can see is it is one of the few companies with a large market capitalization in the BTC space.”

For instance, the Amplify Transformational Data Sharing ETF, which manages $1.2 billion worth of investments, has gained 6.5% exposure in MSTR after snubbing Grayscale Bitcoin Trust, the leading Bitcoin investment vehicle in the U.S. that trades over-the-counter, which restricts it from receiving capital from certain funds and exchange-traded funds.

Similarly, the Siren Nasdaq NexGen Economy ETF has exposure to MSTR but holds no GBTC.

Related: MicroStrategy stock flips bullish with MSTR a Bitcoin ‘proxy’ for institutional investors

As a result, MicroStrategy stock and Bitcoin prices


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MicroStrategy stock flips bullish with MSTR a Bitcoin ‘proxy’ for institutional investors

MicroStrategy’s stock (MSTR) is preparing to undergo a massive bull run in the sessions ahead.

So shows a technical setup, dubbed inverse head and shoulder, that has a history of predicting upside moves with an accuracy of 83.44%, as per Samurai Trading Academy’s research. MSTR appears to have formed a similar bullish structure, as shared by independent market analyst Bob Loukas.

MicroStrategy stock daily chart featuring inverse head and shoulder setup. Source: Bob Loukas, TradingView.com

In detail, an inverse head and shoulder (IH&S) setup forms when the price forms three troughs in a row, with the middle one (head) deeper than the other two (shoulders). Meanwhile, all the troughs hang by a price ceiling (neckline).

Traditional chartists consider IH&S as bullish if the price breaks above the neckline with higher volumes. In doing so, the price expects to rise by as much as the distance between the middle trough’s bottom and neckline.

Applying the classic definition to the MSTR chart, the next profit target for the stock appears near $1,478, almost twice the current bid range.

Is MSTR a shortcut to gain Bitcoin exposure? 

The upside outlook for MSTR appears as it continues to stay positively correlated to Bitcoin (BTC), a highly volatile cryptocurrency propagated as “digital gold” by its hardcore enthusiasts.

MicroStrategy owns 105,085 BTC worth around $5.23 billion as Bitcoin price returns to $50,000. In fact, the Nasdaq-listed company’s exposure to Bitcoin has made MSTR a quasi-proxy for the flagship cryptocurrency.

MSTR daily price chart versus BTC/USD. Source: TradingView.com

MSTR has gained momentum, especially amid aggressive traders—those with a higher appetite for risks—with its year-to-date returns now at 65.21%.

At the same time, Bitcoin prices have climbed 68.22%, with many analysts now anticipating the BTC/USD rates to grow double by the end of 2021 and hit $100,000.

But MSTR and BTC/USD showed signs of decoupling after June. In the period, the MicroStrategy stock limited its downside moves against a comparatively aggressive bearish trend in the Bitcoin market. Financial analyst Alexander J Poulos spotted the deviation, noting that it could have been due to Capital Group’s investment in MicroStrategy.

In June, the U.S.-based financial services company, which runs the American Funds family of mutual funds, bought a 12.2% stake in MSTR. Poulos stressed that Capital Group’s $600 million investment was an indirect way for it to gain exposure to Bitcoin.

“With the SEC not approving a pure-play BTC ETF, MSTR will continue to serve as a proxy for fund families,” he said, adding:

“The move by the Capital Group is not an outlier. I expect others to initiate or add to their existing positions.”

A high-risk play

MicroStrategy has amassed heavy debts to purchase Bitcoin. Therefore, considering they would sell their crypto holdings to respect their financial commitment to bond investors could be a potentially negative event for MSTR.

In his SeekingAlpha op-ed, Joshua Sorto, the staff accountant at MNCPA, wrote that MicroStrategy could easily pay back the debt on their first $650 million convertible note—MSTR is already trading above $517 to convert notes into shares that do not require Microstrategy to sell the Bitcoin inventory.

But the second convertible note has a conversion rate benchmark set at $1,432.46. That said, MicroStrategy would need to triple its market valuation by 2027, which means MSTR would need to rise over 100% before the bond’s maturity.

“In order for MSTR to do that, the analytics business will have to produce cash flows of $125 million per quarter; at the moment, it’s running at less than half that level,” Sorta said while referring to MicroStrategy’s second-quarter earnings.

The third note is not convertible. MicroStrategy has bought 13,005 BTC with nearly half a billion-dollar worth of proceeds. So, whether or not the firm would pay off its debt depends majorly on Bitcoin’s performance until 2026.

Related: MicroStrategy stock slides after announcing new $400M debt raise to buy Bitcoin

In its filings with the U.S. Security and Exchange Commission, MicroStrategy has revealed a total of 49 risks, 47% of which concerns finance and corporates. Also, the risk tally comes to be higher than the S&P Average of 31. 

MicroStrategy risk disclosures. Source: TipRanks

Poulos admitted that he is bullish on Bitcoin in the coming years, which, in extension, means he is also bullish on MicroStrategy. Sorto also expressed a similar outlook, noting that MSTR’s association with a booming Bitcoin industry would have the stock retain its upside outlook long-term.

“There are no storm clouds on the horizon, but a few clouds in the distance are worth monitoring,” he wrote.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.