MicroStrategy’s Stock: The New Crypto Game Plan?

You know, it’s interesting to see that several U.S. states are starting to invest in MicroStrategy (MSTR) stock to get their hands on some Bitcoin exposure. It’s a pretty big deal considering the whole regulatory mess and all that comes with crypto. And guess what? They’re not the only ones, as MicroStrategy builds up its Bitcoin stash, it’s a pretty good signal for institutional players.

Why MicroStrategy?

States like California, Florida, Wisconsin, and North Carolina are all in on this. California is leading the charge, with their State Teachers Retirement System holding over 285,000 shares worth around $83 million. CalPERS isn’t far behind, with 264,000 shares valued at $76 million. Apparently, by the end of 2024, twelve U.S. states had sunk over $330 million into MicroStrategy.

And it’s not only the U.S. that’s catching on; international funds like Canada’s Healthcare of Ontario Pension Plan and South Korea’s National Pension Service are also buying in. The attraction? MicroStrategy owns a whopping 478,740 BTC worth around $46 billion. Not surprisingly, their stock has soared 383% over the last year, leaving the rest of the crypto market in the dust.

The Risks

Now, let’s not sugarcoat it. Investing in MicroStrategy is risky. The stock’s got a standard deviation of 97% from January 2021 to December 2024. That’s a lot. And it’s largely because of their aggressive Bitcoin buying. If Bitcoin tanks, MicroStrategy might struggle to raise funds, and you can bet the stock price takes a hit.

On the other hand, direct Bitcoin investments are pretty wild too. Bitcoin’s standard deviation was 82.7% from January 2015 to December 2019 and 74% from January 2021 to December 2024. There’s a lot going on in that crypto market – regulatory changes, market moods, you name it. Both paths are risky, but MicroStrategy’s company structure might offer a slight cushion.

The Gains

Despite the volatility, MicroStrategy’s Bitcoin strategy has been lucrative. Their Sharpe ratio jumped to 0.998 after they started buying Bitcoin. You know what that means? Better risk-adjusted returns. Last year alone, MicroStrategy raked in over $13 billion in Bitcoin revenue, leading to a low P/E ratio of 6.36. Compare that to the S&P 500’s 28.77, and it’s not too shabby.

But let’s be real. Bitcoin has its own high-risk, high-reward game. Its Sharpe ratio was 1.034 before MicroStrategy bought in and dropped to 0.748 afterward. High returns but also a lot of risk.

What’s Next?

Legislative efforts, like West Virginia’s recent Inflation Protection Act, show that state pension funds are getting comfortable with digital assets in their portfolios. This means more states might follow suit, investing in MicroStrategy to gain that indirect Bitcoin exposure without the hassle of direct crypto investing. They get the transparency and accountability that comes with a publicly traded company.

This investment wave by state pension funds into MicroStrategy isn’t just a footnote; it’s a bullish signal for Bitcoin. It shows that they believe in its long-term viability. The backing could stabilize Bitcoin’s price and sentiment.

Summary

That’s the play. Investing in MicroStrategy’s stock is a way for these funds to dip their toes into Bitcoin while sidestepping the crypto mess. Both MicroStrategy and Bitcoin investments have their risks, but the potential upside and legislative backing are there. As more public funds jump onboard, we could see traditional finance and crypto mesh even closer. Buckle up, it’s going to be a ride.