The Contrarian Case for Strategy (MSTR)

Strategy (MSTR), formally known as MicroStrategy, is the leading Bitcoin treasury company. Initially, Strategy was a business intelligence and mobile software company. However, Founder and former CEO Michael Saylor transformed the company into a Bitcoin Treasury company in August 2020, citing Bitcoin’s utility as “digital gold” and a hedge against rampant inflation. Since then, Strategy has used a combination of debt and equity to continuously accumulate Bitcoin. Today, Strategy owns more than 700K Bitcoin, valued at more than $50 billion. Investors should treat MSTR as a leveraged Bitcoin bet (with approximately 3.5x leverage)

Bitcoin: Crisis Equates to Opportunity

Since its inception, Bitcoin has been the best-performing asset in the world – by far. In fact, over the past 15 years, Bitcoin has delivered a compound annual growth rate (CAGR) of 91.75%, returns that most investors can only dream of.

However, with high performance comes sacrifice. Drawdowns and volatility are the price of admission for outsized performance. In its history, Bitcoin has suffered drawdowns of 70% or more on multiple occasions. Michael Saylor’s quotes underscore the importance of understanding volatility in the context of Bitcoin:

“If you want the most resilient and liquid asset in the world, you have to accept the volatility that comes with it.”

“Volatility was a gift to the faithful.”

Regardless of the volatility, Bitcoin will always have value because of its unique attributes, which include scarcity, decentralization, and digital portability. Additionally, the Bitcoin network has proven secure, having never been successfully hacked in its history.

Bitcoin Bullish Sentiment is at Multi-Year Lows

The Coin Market Cap Crypto Fear and Greed Index is “a powerful tool that analyzes market sentiment to help you make informed crypto investment decisions.” Bearish sentiment in the crypto space has reached its lowest level in more than three years – a bullish contrarian indicator.

Forced Liquidation Fears are Unfounded

One of the biggest misconceptions among MSTR bears is that a prolonged Bitcoin correction would force the company to liquidate its Bitcoin holdings. However, while a massive Bitcoin bear market would cause dilution, Saylor has confirmed that the company has “capital for the next 70 years.” While equity dilution would likely occur with a prolonged Bitcoin correction, liquidation fears are overblown.

Bottom Line

History shows that peak bearishness in Bitcoin serves as a powerful contrarian signal. For those who view Bitcoin’s scarcity and decentralization as the future of finance, Strategy remains the most aggressive vehicle to capture that growth.

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This article originally published on Zacks Investment Research (zacks.com).

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