The decision to purchase Bitcoin by MicroStrategy Inc. Chairman Michael Saylor may now be in doubt given the impending arrival of exchange-traded funds that will contain the largest cryptocurrency.
SEC May Approve Bitcoin ETF Soon!
After a significant court decision earlier this year, the US Securities and Exchange Commission is likely to allow exchange-traded funds (ETFs) that invest directly in Bitcoin. As a result, experts and investors are starting to question whether MicroStrategy’s shares will continue to fetch a premium. Even MicroStrategy has brought up the issue in a recent filing; the company will be releasing its quarterly results later on Wednesday.
The Tysons Corner, Virginia-based business stated in a filing dated August 1 that “to the extent that our Class A common stock is viewed as an alternative-to-Bitcoin investment vehicle and trades at a premium to the value of our Bitcoin holdings, that premium may also be eliminated, causing the price of our Class A common stock to decline.”
Lance Vitanza Analyzes MicroStrategy’s BTC Holdings
Saylor has amassed about $5.5 billion in cryptocurrencies since the middle of 2020, transforming the once-struggling software business into a Bitcoin stand-in for stock investors. MicroStrategy’s stock has more than quadrupled in value throughout that period as the value of Bitcoin has increased. In the same time frame, the benchmark Standard & Poor’s 500 Index increased by around 40%.
Saylor started purchasing Bitcoin in 2020, claiming that the corporation needed to maintain less cash due to the inflation danger that was seen to be diminishing. The change was brought about by a stagnation in software company income. Saylor resigned as chief executive officer of the firm last year, stating he would concentrate on the dual strategy’s Bitcoin component.
Because of its hoard of 158,245 Bitcoin as of September, TD Cowen analyst Lance Vitanza calculates that MicroStrategy’s shares fetch a premium of around 30% above the enterprise value of the business. If the SEC approves the ETFs in the upcoming months, the premium might decrease from 15% to 25%, he added.
Vitanza, who has an “outperform” rating on MicroStrategy, predicted that although it might decrease, it would not reach zero.
Vitanza finds solace in the idea that the adoption of ETFs would spark a surge in the price of Bitcoin, which will raise the share price and counteract a decrease in the premium. According to him, MicroStrategy’s core software company and its capacity to borrow against its assets in order to purchase more Bitcoin will keep it appealing.
According to Vitanza, “the launch of a spot ETF will result in the investment of several tens of billions of dollars in Bitcoin.” “We believe that while the premium in MicroStrategy stock will decrease, the increase in Bitcoin’s price will more than offset this.”
According to a Bloomberg survey of analysts, MicroStrategy is anticipated to announce third-quarter sales of $125.8 million and earnings before charges such as taxes of $25.3 million. That about equals the income from the same time last year. At $8.2 million was Ebidta.