Currently, there are only a handful of companies with a market capitalization over $1 trillion. With the exception of Warren Buffett Berkshire HathawayThey are all fast-growing technology stocks. So the logical assumption is that the next big company worth $1 trillion will be another tech company.
But what if the next $1 trillion company is a crypto company instead? That’s the vision for MicroStrategy Inc.(NASDAQ:MSTR)which has absolutely increased in value as a result of its sheer size Bitcoin(CRYPTO: BTC) possessions. This year, MicroStrategy is up a whopping 264%, and since 2020 it has outperformed all other companies. S&P500 stock. Is MicroStrategy really on track to become the first $1 trillion crypto stock?
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The first thing you need to know about MicroStrategy is that the company has 252,220 Bitcoins on its balance sheet, which at current prices is worth a cumulative total of $17 billion. This easily makes MicroStrategy the largest corporate holder of Bitcoin in the world. In fact, MicroStrategy now owns more than 1% of all Bitcoin currently in circulation.
The company shows no signs of stopping anytime soon. MicroStrategy has been buying Bitcoin since 2020 and has been making regular Bitcoin purchases almost every month. If anything, MicroStrategy is now ramping up its purchases of Bitcoin. The company’s latest strategy is issuing convertible debt as a way to buy even more Bitcoin in the future.
The path to $1 trillion is actually remarkably simple: buy as much Bitcoin as possible and wait for its price to rise. Considering that Michael Saylor, founder and executive chairman of MicroStrategy, now thinks Bitcoin could reach $13 million by the year 2045, a trillion-dollar valuation is certainly within the realm of possibility.
In October, Saylor outlined an entirely new strategy. The plan is simply to transform MicroStrategy from an enterprise software company into an investment bank. As Saylor notes, “The end game is to be the leading Bitcoin bank or merchant bank, or you could call it a Bitcoin finance company.”
Image source: Getty Images.
As part of this strategic transformation, MicroStrategy will begin creating new Bitcoin capital market instruments. From a broad conceptual standpoint, you can think of MicroStrategy as a giant Wall Street investment bank that does whatever it takes Goldman Sachs or Morgan Stanley yes, but with Bitcoin instead of dollars.
Saylor sees Bitcoin eventually becoming a $100 trillion asset class, and he wants to be at the forefront of everything happening with Bitcoin in the global financial markets. According to him, it’s much more profitable if you get paid in Bitcoin rather than dollars, and a lot safer from a risk management perspective if you’re dealing with Bitcoin-denominated assets rather than dollar-denominated assets.
The idea of MicroStrategy becoming a multi-billion dollar company sounds far-fetched, right? After all, MicroStrategy is only a $50 billion company at this point. And for now, MicroStrategy is just an enterprise software company, not some kind of Bitcoin investment bank.
But the point is, the math behind the $1 trillion valuation actually works if you make one key assumption. Considering that MicroStrategy is effectively a Bitcoin proxy stock at this point, all you need to do is see the price of Bitcoin increase twentyfold. Given the company’s current valuation of $50 billion, that helps it reach a $1 trillion valuation.
There are plenty of price predictions that have Bitcoin doing just that. Cathie Wood of Ark Invest, for example, thinks Bitcoin will easily reach a price of $1 million by 2030. In April, she even increased her Bitcoin price prediction to $3.8 million. Considering Bitcoin’s current price of $68,725, there is a twentyfold valuation boost.
But how many people outside the crypto market actually think Bitcoin will reach a price of $1 million by 2030? For that to happen, Bitcoin needs to grow at a compound annual growth rate of 70% over the next five years.
As we know from past experience, Bitcoin tends to have years where it loses more than half of its value. For example, in 2022, Bitcoin fell by 65%. So it’s a bit naive to assume that Bitcoin’s price trajectory will be a nice, upward curve over the next few years.
The decision of whether or not to buy MicroStrategy really comes down to your view on the future of Bitcoin. If you think Bitcoin will continue to rise in value, then so should MicroStrategy. This makes the company attractive as an investment target.
Keep in mind that if the price of Bitcoin ever drops significantly, it could have long-lasting negative consequences for any company that has as big an influence on Bitcoin as MicroStrategy.
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Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
With a 264% gain, MicroStrategy is on track to become the first crypto stock worth $1 trillion? was originally published by The Motley Fool
