Shares of Strategy (MSTR 6.59%) stock -- formerly MicroStrategy -- sank around 15% this week, according to data from S&P Global Market Intelligence. The Bitcoin investment company sank along with the price of Bitcoin this week as it ramps up its convertible notes and debt offerings to help fuel more Bitcoin purchases.
Strategy shares are up 163% in the last year, rising along with Bitcoin. Now, with the cryptocurrency crashing, investors are heading for the exits for Strategy stock as well. Here's why Strategy stock fell this week and whether it is a buy for your portfolio today.
A few years back, Strategy switched its entire corporate strategy to accumulating Bitcoin on its balance sheet. So far, the bet has paid off as Bitcoin's price has risen.
However, the company is now tied at the hip with the volatile cryptocurrency, so when the price of Bitcoin falls, Strategy stock falls. The price of Bitcoin is down 20% in the last month. Strategy stock is down 25%.
To finance its purchases of Bitcoin, Strategy has taken on new debt on its balance sheet and sold billions worth of common stock. In February, the company sold $2 billion of 0% interest rate convertible notes due in 2030, which give the company cheap financing to purchase more Bitcoin. It isn't free money, though, and adds some more risk to Strategy's balance sheet.
More importantly, Strategy is using an at-the-money (ATM) offering to consistently issue new shares of its stock. In the last three months of 2024 alone, Strategy sold $15.3 billion worth of common stock to buy more Bitcoin. At the end of 2024, the company held 447,470 Bitcoins.
Using its end-of-year Bitcoin holdings of 447,420, the market value of Strategy's assets currently sits at around $38 billion. Disregarding the debt on the balance sheet, these Bitcoin holdings are worth well less than what Strategy trades for in the public markets. Even after this drop, Strategy has a market cap of $64 billion.
This means that Strategy trades at close to 2x the actual value of the Bitcoin on its balance sheet. And that is before considering its debt liabilities. It is unclear why someone would buy Strategy stock instead of the underlying Bitcoin itself.
Stay far away from Strategy stock, even if you want to get exposure to the cryptocurrency market.
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