Bitcoin Stocks

What are Bitcoin stocks?

The term describes a connection to Bitcoin, rather than a single type of business. Some companies hold Bitcoin as a treasury asset. Others mine it, or provide trading and related services. Each business earns money and takes risks in a different way.

A treasury company is exposed to the value of its holdings and how those holdings are financed. A miner also faces equipment, electricity and operating costs. A trading business depends on customer activity and its revenue model. The Bitcoin price matters, but it does not explain the whole investment.

What is Strategy?

Strategy, formerly known as MicroStrategy, is a publicly traded company whose common shares trade on Nasdaq under the ticker MSTR. It has an enterprise analytics software business and a Bitcoin treasury strategy. Buying and managing Bitcoin holdings has become a central part of its investment proposition.

The company seeks to give investors Bitcoin-related economic exposure through its securities. It has used common shares, preferred securities and debt to raise capital. These are different claims on the company; this article focuses on its common stock. See Strategy’s company information and software business.

How financing affects shareholders

Raising money can allow a company to acquire more assets, but the source of the money matters. Debt brings repayment obligations. Preferred securities have rights ahead of common shareholders. Issuing additional common shares increases the number of shares over which the business is divided.

Consider a fictional company with $100 of assets and $40 of debt. Ignoring other items, common equity is $60. If the assets rise 20% to $120 while the debt stays unchanged, equity rises to $80—a 33.3% gain. If the assets fall 20% to $80, equity falls to $40—a 33.3% loss.

This illustrates financial leverage, not Strategy’s actual balance sheet or an expected stock return. Financing costs, other liabilities, new shares and changes in market valuation would affect the result.

Buying Strategy shares versus buying Bitcoin

Buying Bitcoin outright gives exposure to the asset you hold. Buying MSTR gives ownership of company equity. Shareholders cannot redeem their shares for the company’s Bitcoin, and the share price is not required to track the value of its holdings.

The market also prices the company’s financing, business prospects and management decisions. A share-price premium can shrink, or a discount can widen. Bitcoin could rise while the stock falls. Strategy is therefore not a fixed two-times or three-times Bitcoin investment.

The company’s gross Bitcoin holdings alone do not tell you the value available to each common share. Senior claims and the share count matter too. Strategy explains these distinctions in its investor notes.

Understanding the investment

For a Bitcoin stock, examine both the Bitcoin exposure and the business behind the shares. Consider how it funds its activities, the obligations it must meet and what could change its exposure per share. Different Bitcoin-related companies can respond very differently to the same market move.

Holding company shares avoids the need to manage Bitcoin keys yourself, but introduces company risk. Direct ownership has its own custody and trading considerations. Neither route guarantees a profit or protects against a large decline.

Options on Bitcoin stocks

Where listed, calls and puts offer another way to trade the company’s share price. A purchased call can magnify percentage gains because its premium is smaller than the cost of buying the underlying shares. It also has a strike and an expiry, and the entire premium can be lost.

Bitcoin and the stock can both rise while a call loses money if the move is too small or arrives too late. Options on Bitcoin Stocks explains this with a $3,000 comparison using MSTR shares and calls.

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