Summary MicroStrategy's Bitcoin strategy is overshadowing its business intelligence and analytics software services. The correlation between MicroStrategy's stock (MSTR) and Bitcoin is strong, with MSTR tending to move 1.5 times more in the same direction as Bitcoin. MicroStrategy is considered a top pick for gaining exposure to Bitcoin in the imminent Bitcoin bull run due to its high correlation to Bitcoin and potential for mirroring Bitcoin's gains. Michael Saylor’s forward-thinking treasury strategy is beginning to pay off as the Bitcoin ( BTC-USD ) bull market beckons. Is MicroStrategy ( MSTR ) still a business intelligence ((BI)) and analytics software provider, considering anywhere the company is mentioned these days it is mainly about its Bitcoin-powered strategy? Sure, they still do BI and recently ventured into AI, but the real head-turner? Their dive into Bitcoin. It's like the BI and analytics (and more recently AI) businesses now play second fiddle to the company’s whole leveraged Bitcoin strategy. Saylor’s dollar cost averaging (DCA) approach can be considered the best approach for building a portfolio of a volatile asset like Bitcoin, and this approach is paying off for MicroStrategy. Michael Saylor’s Bitcoin purchases began in August 2020, about three months after the third Bitcoin halving event. About a year after the first purchase, MicroStrategy's Bitcoin holdings had jumped up to 92,000 Bitcoin. The firm currently holds a stash of 193,000 BTC. At the current Bitcoin market price, the firm’s current 193,000 Bitcoins sit at a value of $12 billion and over $5 billion of unrealized profits. Correlation Between Bitcoin Price and MicroStrategy's Stock MSTR, BTC 3-year price return (Seeking Alpha) Since 2020 (the start of MicroStrategy’s Bitcoin-powered treasury strategy), the price charts of MSTR and Bitcoin exhibit a striking similarity, showing parallel movements in their respective values. The beta of MSTR relative to Bitcoin indicates a positive covariance. Without much jargon, this simply implies that MSTR is sensitive to Bitcoin’s price movements. A price movement in Bitcoin results in a similar price action in MSTR. MSTR, BTC rolling one-month volatility in the 1-year time frame (portfoliolabs.com) MSTR’s beta relative to Bitcoin is currently around 1.5, meaning MSTR tends to move, on average, 1.5 times more in the same direction as Bitcoin. A beta of 1.5 indicates that MSTR has shown a higher degree of volatility compared to Bitcoin, and movements in Bitcoin's price are likely to be reflected with amplified movements in MSTR. Momentum comparison of MSTR and Bitcoin shows that the correlation isn't a fluke. The overall momentum metric (provided by Seeking Alpha) for MSTR and Bitcoin shows a holistic view of the sustained and synchronized market response between MSTR and Bitcoin. BTC, MSTR correlation coefficient (tradingview.com) MSTR’s correlation coefficient to Bitcoin has been above 0.5 since August. Currently, MSTR has a correlation coefficient of 0.96 relative to Bitcoin. This is a very high positive correlation. MSTR’s relative beta to Bitcoin (mentioned earlier) measures the stock’s sensitivity to Bitcoin’s price movements and its volatility relative to Bitcoin, while the correlation coefficient metric measures the strength and direction of the linear relationship between MSTR and Bitcoin. The correlation coefficient is measured from -1 to 1, with 1 indicating the highest level of correlation between two assets. Given the correlation coefficient of 0.94 between MSTR and Bitcoin, it is evident that MSTR shares a remarkably strong and tightly woven connection with Bitcoin, moving in tandem with Bitcoin; although more volatile, considering the earlier mentioned beta of 1.5 relative to Bitcoin. MSTR’s Correlation to BTC Makes it a Top Pick for the Imminent Bull Run Following the spot Bitcoin ETF approvals in January, inflows and the record of AuM have been nothing short of impressive. YTD, Bitcoin has gained ~41%. The Bitcoin halving event is slated to occur in about two months. Historically, the halving event has proved to be a catalyst for Bitcoin as the new supply of the crypto asset gets cut in half, creating scarcity. One interesting development about the current crypto market cycle is that for the first time leading up to the halving, Bitcoin has a major catalyst - the spot Bitcoin ETF - besides the halving event. Previous Bitcoin bull runs and price surges seemed more ephemeral, mostly spurred by events that, upon closer examination, appeared somewhat superficial in their impact on the cryptocurrency market. For example, the 2017 bull run was allegedly spurred by the activities of a lone Bitcoin whale . For those unfamiliar with the term 'whale,' it simply means an individual holding a significant portion of a crypto asset’s supply, thus wielding influence over the asset’s price dynamics. In 2017, when the Bitcoin market was still in its infancy, it was more susceptible to the potential influence of a 'whale.' However, as the market has matured and the total market cap has surged significantly, it would be near-impossible for a lone whale to assert such influence. In 2021, the bull run was largely driven by hyped sales of NFTs, for example, Beeple’s $69 million art sale and trivial events like a Bitcoin-related tweet from Elon Musk’s or an update to his X bio (formerly Twitter) portraying support for crypto. I believe that the market has since matured, especially with the introduction of spot ETFs and the organic demand it creates. It's an all-around bullish outlook for Bitcoin moving forward. The spot Bitcoin ETFs have created accessibility for institutions to access Bitcoin, and demand for the asset has continued to increase, reflected in the recent price surge. YTD, digital asset inflows have now surpassed $5.7 billion, with a $67.47 billion AuM. Just two months into the year, YTD inflow already represents 55% of the record inflows witnessed during the last bull run in 2021. Risks and Takeaway Regardless of the spot Bitcoin ETFs, Bitcoin still possesses some risk of volatility. MSTR, being highly correlated to Bitcoin, also shares in this volatility risk. With a positive beta relative to Bitcoin, MSTR could exhibit even more volatility. Unexpected global events, which include geopolitical tensions, or macroeconomic shocks could influence the cryptocurrency market and subsequently affect MSTR. Though touted as a safe-haven asset, Bitcoin isn't immune from these risks. Considering Bitcoin’s current catalysts (the spot ETFs and the upcoming halving) and the bullish scenario they create for Bitcoin, a highly correlated stock like MSTR is a great way to gain Bitcoin exposure. Indeed, among Bitcoin-exposed stocks, MSTR is a top pick. Its correlation to Bitcoin remains unparalleled. Even stocks of top miners do not come close to MSTR in its Bitcoin correlation. MSTR is an ideal stock for Bitcoin exposure and to mirror Bitcoin’s actual gains.
