MicroStrategy Incorporated MSTR

MicroStrategy Inc. and its subsidiaries have made several large strategic purchases of the cryptoasset Bitcoin since August 2020, resulting in the accumulation of a significant Bitcoin treasury reserve (MicroStrategy Inc. is one of the largest corporate holders of Bitcoin, globally). Such a strategy comes with significant risks, however.

The company’s heavy reliance on Bitcoin as its primary reserve asset exposes it to significant price volatility, affecting performance and shareholder value. Whereas the company’s performance (and share price) was historically more muted, and closely linked to its previous core activities of enterprise software solutions and development, its recent focus switch has led some to describe the company as a “Bitcoin treasury company” or as a “Bitcoin Proxy”, with its performance being more correlated to that of the price of Bitcoin.

One should note however, that whilst MicroStrategy Inc. may be described as a “proxy”, investors should be aware of the volatility differential between the Bitcoin price and the price of the Company, with the latter displaying significantly higher volatility. The company’s market cap is closely linked to the value of Bitcoin, creating the potential for both sharp declines and increases in price. Investors should be aware of the heightened risk deriving from such a dynamic.

Founded in 1989, MicroStrategy Inc. has historically positioned itself as a development company that provides business intelligence, enterprise analytics, mobile software, and cloud-based services. Its customers include leading companies from a wide range of industries and geographies. Its product/service-based revenues are predominantly focused on the US region, followed by the EMEA region, accounting for 30%. Notably, MicroStrategy has faced declining revenues and long-term losses in its software solutions business in recent years.

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