Bitcoin’s Shadow: How MicroStrategy Became a Crypto Proxy

MicroStrategy’s (MSTR) stock performance has become increasingly intertwined with the price of Bitcoin (BTC) since the company began its aggressive Bitcoin accumulation strategy in 2020. Initially, the two assets exhibited a weak or negative correlation, but this has shifted dramatically, with MicroStrategy’s stock price now showing a strong positive relationship with Bitcoin. As of February 2025, the Pearson correlation coefficient between MSTR and BTC is 0.897, indicating a significant alignment in their price movements. This transformation reflects a broader shift in market perception, with investors increasingly viewing MicroStrategy as a proxy for Bitcoin exposure rather than a traditional software company.

MicroStrategy’s Bitcoin holdings have grown substantially, with the company acquiring over 636,505 BTC by mid-2025. The firm has funded these purchases primarily through equity issuance and debt financing, raising approximately $28 billion since late 2024. Despite the dilution of shares, the company’s "BTC Yield" key performance indicator (KPI) has improved to 25%, indicating that each share now represents a greater proportion of Bitcoin assets. This strategy has been supported by Michael Saylor, the company’s CEO, who has long advocated for leveraging equity issuance to acquire Bitcoin at a discount to its market value, particularly during periods of high premiums for MSTR stock.

The company’s stock, however, has not mirrored the gains seen in its Bitcoin reserves. Since its November 2024 peak, MSTR has declined by approximately 39%, despite a 19% increase in Bitcoin’s price during the same period. This divergence raises questions about how the market is valuing MicroStrategy’s dual role as a software company and a Bitcoin treasury firm. Analysts suggest that the stock’s underperformance may be driven by broader market sentiment toward crypto assets, concerns over equity dilution, and macroeconomic uncertainties. Similar declines have been observed in other "Bitcoin treasury" stocks, such as Marathon Digital (MARA), Coinbase (COIN), and Riot Platforms (RIOT), which have all experienced significant losses from their recent highs.

MicroStrategy’s strategy has also attracted regulatory attention, particularly as the company navigates the evolving landscape of cryptocurrency accounting standards. The Financial Accounting Standards Board (FASB) introduced ASU 2023-08, requiring crypto assets to be measured at fair value, with changes in value directly impacting net income. While MicroStrategy has not yet adopted the new rule, it plans to reflect the change in its Q1 2025 financials. This transition could introduce additional complexity in evaluating the company’s financial health, as fluctuations in Bitcoin’s price may distort perceptions of the core software business.

In terms of valuation, MicroStrategy’s book value per share, based on its current Bitcoin holdings and excluding its digital assets, stands at $164.86. Adding the intrinsic value of the company’s core business, the fair value per share is estimated at $173.36. With a typical 80% premium applied to reflect market expectations, the adjusted fair value rises to approximately $312.05. This valuation suggests that, even if the stock trades below this level, it could represent an undervalued investment opportunity. However, the company’s future performance will be heavily dependent on Bitcoin’s price trajectory and the broader adoption of the cryptocurrency in institutional and governmental portfolios.

Looking ahead, MicroStrategy’s Bitcoin Yield KPI targets are expected to remain a key driver of shareholder value. In 2025, the company aims for a minimum annual yield of 15%, meaning the number of diluted shares per Bitcoin will decrease from 629.62 to 547.5. This calculation assumes an average 34% increase in share count, consistent with previous years. If the average purchase price of Bitcoin in 2025 reaches $150,000, the total cost could reach $36.47 billion, further expanding MicroStrategy’s reserves.

The company’s broader financial strategy also includes a $42 billion capital plan announced in late 2024. This plan involves raising $21 billion through equity and $21 billion through fixed-income securities, with a target BTC Yield of 6% to 10% annually from 2025 to 2027. The rapid pace of Bitcoin acquisitions under this plan has already resulted in the use of $21.23 billion in the first three and a half months, suggesting that MicroStrategy could exhaust the remaining funds well ahead of the 2027 target.

Despite these developments, investors remain cautious. The recent divergence between MicroStrategy’s stock price and Bitcoin’s performance highlights the risks associated with the company’s heavy reliance on cryptocurrency. While MicroStrategy has demonstrated a strong ability to grow its Bitcoin holdings, the volatility of both the stock and Bitcoin markets introduces significant uncertainty. Analysts project that Bitcoin’s price in 2032 could range from $253,452 to $1,684,194, depending on market conditions. In all scenarios, Bitcoin is expected to outperform MicroStrategy, even after accounting for the company’s potential 300% net asset value (NAV) premium.

MicroStrategy remains a unique investment case, offering indirect exposure to Bitcoin through a traditional corporate structure. Its strategy continues to evolve, with the company positioning itself as a bridge between the traditional financial system and the growing cryptocurrency market. While the stock’s performance has lagged, the long-term success of MicroStrategy will likely depend on the broader adoption of Bitcoin by institutions and governments, as well as the company’s ability to maintain its premium valuation in the face of ongoing market challenges.