A report from TD Cowen indicated that the Bitcoin premium for Strategy (formerly known as MicroStrategy) continues to decline, now approaching the low levels seen during the cryptocurrency winter of 2021-2022.
According to managing director Lance Vitale, the company did not issue any shares under its ATM programs today and did not buy any new Bitcoin, highlighting once again the unique value of Bitcoin to MSTR's stock. The chart extending since 2020, along with the chart for the past twelve months, shows a continuous decline in the premium towards the levels of late 2021 and early 2022.
What is meant by Bitcoin premium?
The Bitcoin premium for Strategy indicates the difference between the price of MSTR stock and the value of the Bitcoin holdings owned by the company. When the stock trades close to the value of those holdings, the premium narrows, while it widens if investors consider the stock a means of leverage to gain exposure to Bitcoin. The premium has seen a sharp decline from its peak late last year.
TD Cowen Forecasts
Despite the decline in the premium, TD Cowen maintained a target price of $535 per share, considering it reflects an upside opportunity of about 200% from the current price (~$180). The report emphasizes continued optimism for MSTR stock, with the company expected to hold 815,000 Bitcoins by the end of fiscal year 2027, making the intrinsic value per share around $540, reflecting a premium close to zero.
Index Inclusion Risks
The report indicated the possibility of removing Strategy from MSCI indices, which is a potential pressure factor on the stock due to expected sell-offs from passive funds. The report estimates that this could lead to outflows of $2.5 billion from MSCI indices, in addition to about $5.5 billion from other indices.
Despite these risks, Michael Saylor affirmed that the company's long-term strategy and his confidence in Bitcoin are solid, emphasizing that the classification of indices does not define the company's role. TD Cowen analysts agree with his stance, noting that the expected performance of MSTR stock may outperform Bitcoin once the market recovers.
Summary
As 'Strategy' continues to accumulate Bitcoin at a faster pace than its financial commitments, the premium remains an important indicator for investors, especially with the increasing integration of Bitcoin into the global financial system, making the stock a more strategic tool than just an ordinary share.
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