Summary Retail investors are cautioned against investing in MicroStrategy due to its unclear business model and high premium over its Bitcoin holdings. Bitcoin investments are best made countercyclically, during periods of low interest and panic, not during peak hype. The Company's bullish case is convoluted and lacks clear, sustainable cash flow generation, unlike straightforward business models like McDonald's or Google. For Bitcoin exposure, consider Bitcoin ETFs or even futures instead of MSTR, which carries additional risks and complexities and is inefficient. Before I start my discussion on MicroStrategy: I would like to set the tone that I'm not a crypto-denier: I was on the record strongly bullish on Coinbase ( COIN ) on October 10, 2022, during the crypto winter, and it has since gone up 367%. Coinbase coverage (Seeking Alpha) Ironically, as shown below, Bitcoin was trading at $20-30k apiece at that time and interest in Bitcoin was much more muted. Bitcoin price (StockCharts) After briefly introducing my crypto "credentials" of honking the bullhorn during the winter stage, I'm going to expand on why I think MicroStrategy should be avoided by investors. Now there is already a lot of bearish coverage on Seeking Alpha, so I'm not going to repeat their points, rather this article will focus on adding a few points: 1. Bitcoin investments are best done countercylically In fact, in the past 5 years, the good buy points were when there was panic and uncertainty, prices were low and sentiment was muted, e.g. as shown in the green boxes below (1) during the COVID panic in early/mid-2020, (2) the subsiding of the bubble during late 2022 and (3) during many uncertainties in mid-2024. Remember when there was worrying over Germany selling crypto in June/July 2024 ? Turns out that was near the low point of the whole year (a cynic might suggest the news of Germany selling a mere $1-$2 billion worth of bitcoin was exaggerated to drive down prices for accumulation, but that would just be pure guessing). Bitcoin price (StockCharts) Another way to gauge sentiment is by using Google Trends and searching for Bitcoin (a lower reading on the indicator indicates less search interest comparatively and vice versa). Note how periods with low search interest were usually bullish for Bitcoin (green boxes), while periods of high search interest and high anticipation (red boxes, i.e. right now, with hype of Strategic National Bitcoin Reserve ) were usually not so good for Bitcoin price performance. So even if an investor were bullish on Bitcoin for the long run, this is probably not the ideal time. Bitcoin Google Trends 2. Convoluted logic and unclarity of MSTR's business model Peter Lynch had a rule that analysts could deliver their pitch for why a stock was a good investment in 90 seconds. That's because the best investments have business models that are easy to clearly articulate. Many of the best investments of all time are easily understandable by any layman if articulated professionally. For example, McDonald's, Coca-Cola, Philip Morris, Google etc. You can see the customers going to and from McDonald's, you can see people smoking and not really quitting, and you can see people using Google every day (whether or not these products and services have any negative externalities that need to be otherwise regulated or managed is a different topic). Their business models are visible and verifiable and there's no question about their existence and utility and popularity with customers. However, when it comes to MicroStrategy bulls, in my opinion, their bullish case is so circuitous and convoluted, it's hard to understand, and you need to continuously try to convince yourself that it makes sense and that in itself is a huge red flag to me. Maybe in the end it'll work out, but I highly doubt it. If we browse through some of the recent analysis on Seeking Alpha, bullish arguments about MSTR include raising debt at 0% to buy "an appreciating asset (i.e. Bitcoin"). But Bitcoin, unlike real estate, does not yield cash flow, so where does the cash flows come from in the long run? Even Michael Saylor admits that "MicroStrategy found a way to outperform Bitcoin. The way that we outperform Bitcoin, in essence, is we just lever up Bitcoin." That does not sound to me like much of a business model. When an investor buys McDonald's or Google, he's buying into the perpetual future cash flows that these businesses can generate in the future. If MSTR is essentially just a leveraged bet on Bitcoin, why should an investor buy MSTR (which is trading at a massive premium to the Bitcoin MSTR owns. MSTR has a market cap of $88 bn while it owns roughly $40bn of Bitcoin at current prices of $100k/coin, and that's before considering the bonds MSTR has issued that will need to be repaid somehow, further diluting the current shareholder and increasing MSTR's effective "premium to net asset value") and not just buy Bitcoin futures? What exactly are investors paying MSTR for that they cannot get in terms of adding or reducing leverage ratio in Bitcoin futures? This reminds me of what Greenspan wrote in his memoir "The Age of Turbulence" about Enron. Now, I'm not saying or alleging that MSTR is doing anything improper or anything like Enron; however, the similarity is that Greenspan viewed Enron's explanation of its business case as complicated and no one knew how it was making money. Eventually, it turns out it was not making money at all and was a house of cards. My view is that at times when darling stock prices have surged, investors in the market are at max gullibility and any story stock with a stock price still appreciating lures in believers. With NVDA going up 1000+% in a year and a half, anything seems possible. Investors should have learned from the Everything Bubble of 2021 receding that when the tide goes out, these speculative issues go kaput, but it seems like they are just doubling down. In fact, when the Everything Bubble of 2021 went out, MSTR fell by 90% from peak to trough as shown below. An investor would have made substantial gains by buying Bitcoin in mid-2020 in the $10ks and in late 2022 Bitcoin even at its trough was mostly in the 20ks. But joining the rollercoaster in MSTR, especially at times of peak interest, was calamitous the last time around and my assessment is that it is not a good risk-adjusted bet this time around either. MSTR stock price (StockCharts) Risks to bearish thesis Again, I would not recommending shorting this stock. Market enthusiasm can continue for way longer than anyone can predict (or sustain) and maybe MSTR doubles or triples and keeps their money machine going on for much longer. Conclusion Individual investors are strongly cautioned against buying MSTR or putting substantial amounts of their life/retirement savings into it. Its business model is unclear and if MSTR is just a levered bet on Bitcoin, then investors can just buy Bitcoin ETFs or Bitcoin futures to gain the same exposure. Note that I am not suggesting a leveraged exposure to Bitcoins, but if that's what investors are looking for, it would probably be more efficient than buying MSTR.
