As the U.S. election draws near, the market appears to be increasingly betting on bitcoin. Yesterday, the price of $Bitcoin (BTC.CC)$ once broke through $73,000, just a step away from its historical high. So far this year, the price of bitcoin has soared by 68%.
Positive developments keep pushing up bitcoin prices
With Trump's chances of winning the U.S. presidential election increasing, the "Trump trade" is trending. During his campaign, Trump claimed that if he were to return to the White House, he would list bitcoin as a strategic reserve asset of the United States and make America the "global capital of cryptocurrency."
Bitcoin ETF options have been approved. On October 18th, the U.S. securities regulator has granted "accelerated approval" to the New York Stock Exchange to list and trade options tied to three spot bitcoin exchange-traded funds, according to a regulatory filing. This decision, following the SEC's approval of ETFs tracking bitcoin in January, further signifies an important turning point for bitcoin and its related industries.Big gaints are increasing their holdings of bitcoin. In the past two weeks, the asset management giant BlackRock has set a record by increasing its holdings by over 30,000 bitcoins (worth approximately $2.3 billion), bringing its total holdings to over 400,000. Also, according to filings with the U.S. Securities and Exchange Commission, tech giant $Microsoft (MSFT.US)$ is also considering entering the bitcoin market.
Why MicroStrategy stands out among bitcoin-backed stocks?
$MicroStrategy (MSTR.US)$ stands out in the bitcoin rally, and its stock price hits a 24-year high yesterday, reaching $267.89. As of October 29th, MicroStrategy's year-to-date gain has exceeded 308%, while Bitcoin's gain over the same period is about 62%.
MicroStrategy, formerly a business intelligence software provider, announced a transformation into a bitcoin reserve institution in 2020. Currently, MicroStrategy has become the world's largest corporate holder of bitcoin, with public data showing that MSTR currently holds 252,220 bitcoins. Also, due to its massive holdings of bitcoin, it is widely considered to be a bitcoin proxy.
MicroStrategy's primary investment strategy involves raising funds through issuing debt to purchase bitcoin, which has a financial leverage effect. Since the cost of debt is fixed, and the value increase of the asset (bitcoin) is higher, the growth in net profit directly enhances the stock value. This is why MicroStrategy's stock price has outpaced bitcoin itself recently, earning it the nickname "leveraged bitcoin ETF." However, it's important to note that while MicroStrategy's stock price gains are tempting, the strategy also carries certain risks. As MicroStrategy holds a large amount of bitcoin, if bitcoin prices collapse, MicroStrategy would face significant asset impairment, convertible bondholders would start to redeem their principal, the refinancing cycle would be broken, and the company could face the possibility of liquidation. Additionally, investors in MicroStrategy need to be aware of the company's liquidity risk. Since MicroStrategy purchases bitcoin by issuing debt, the company has high interest expenses, and if the bitcoin prices collapse significantly, cash flow becomes tight, and interest accumulates too much, the fragility of its balance sheet will be highlighted, ultimately leading to selling behavior.
Market Outlook
In the short term, the "Trump trade" and monetary policy easing are two major "catalysts." James Butterfill, head of research at CoinShares, stated in a report that bitcoin's price and flow are greatly influenced by U.S. politics, and the recent surge in capital inflows may be related to changes in the Republican Party's electoral situation. The shift in policies by global central banks, with the easing of liquidity boosting risk sentiment, also becomes a tailwind for cryptocurrencies.
Furthermore, the current open interest in bitcoin has reached $43.61 billion, a figure that not only highlights market participants' strong interest in bitcoin, but also indicates their optimistic expectations for the future market. As prices continue to rise, holders of these open contracts may gain more profits, further driving up bitcoin prices.
MicroStrategy: Bullish or Bearish?
As an investor, are you bullish or bearish on MicroStrategy's future stock performance? In addition to investing in MicroStrategy, you can also achieve future stock direction (bullish or bearish) and amplify returns by investing in the following ETFs:
MSTU (T-Rex 2X Long MSTR Daily Target ETF）: MSTU seeks daily leveraged investment results and is very different from most other exchange-traded funds. As a result, the Fund may be riskier than alternatives that do not use leverage because the Fund’s objective is to magnify (200%) the publicly-traded common stock of MicroStrategy. It has already risen by 246%, with a trading volume of $867 million.
MSTX (Defiance Daily Target 2X Long MSTR ETF)：MSTX seeks daily leveraged investment results of 2 (200%) the daily percentage change in the share price of MicroStrategy Incorporated. Because the fund seeks daily leveraged investment results, it is very different from most other exchange-traded funds. It is also riskier than alternatives that do not use leverage. There is no guarantee that the Fund will meet its stated objective. The fund should not be expected to provide 200X times the cumulative return of MSTR for periods greater than a day. It has currently risen by about 180%, with a trading volume of approximately $323 million.
MSTY (TIDAL TRUST II YIELDMAX MSTR OPTION INCOME STRATEGY ETF)：MSTY is an actively managed ETF that seeks current income while maintaining the opportunity for exposure to the share price of the common stock of MicroStrategy Incorporated, subject to a limit on potential investment gains. It will seek to employ its investment strategy as it relates to MSTR regardless of whether there are periods of adverse market, economic, or other conditions and will not seek to take temporary defensive positions during such periods. The fund is non-diversified.
SMST (Defiance Daily Target 2X Short MSTR ETF)：The investment seeks daily inverse investment results, before fees and expenses, of -1.5 times (-150%) the daily percentage change in the share price of MicroStrategy Incorporated. The fund is an actively managed exchange traded fund that attempts to achieve 1.5 times the inverse (-150%) of the daily percentage change in the price of the underlying security by entering into swap agreements on the underlying security. The fund is non-diversified.
MSTZ (T-Rex 2X Inverse MSTR Daily Target ETF)： The investment seeks daily investment results, before fees and expenses, of 200% of the inverse (or opposite) of the daily performance of MSTR. The fund, under normal circumstances, invests in swap agreements that provide 200% inverse (opposite) daily exposure to MSTR equal to at least 80% of the fund's net assets (plus borrowings for investment purposes). MicroStrategy engages in the provision of enterprise analytics and mobility software. The fund is non-diversified.
Source: Reuters, Wall Street Journal
