Strategy: Bitcoin's Leveraged Play, Analysts Initiate Coverage

Analysts at Keefe, Bruyette and Woods (KBW) have deemed Strategy (NASDAQ:MSTR) an "attractive proxy" for investors seeking levered exposure to Bitcoin. In a note to clients, the analysts, led by Bill Papanastasiou, initiated coverage of the Bitcoin stockpiler with an "outperform" rating, highlighting the stock's potential as a levered exposure to the world's most popular cryptocurrency.

The analysts noted that Strategy provides "additional torque" from accretive Bitcoin purchases, which are fueled by highly demanded security issuances and a valuation that exceeds net asset value. They also mentioned that the firm has a number of tools to use that could help fund the expansion of its Bitcoin treasury, with management exploring "novel ways" to financially engineer digital asset-related securities for a "wide breadth of investor profiles."

Strategy is also "climbing the ranks into index inclusions," with a potential entry into the benchmark S&P 500 "on the horizon," Papanastasiou said. It has already secured a spot on the tech-heavy Nasdaq 100 index. The firm may benefit from a more favorable regulatory environment for the cryptocurrency industry during the new administration of U.S. President Donald Trump, who has vowed to loosen the reins on the sector and promote the adoption of digital assets.

Papanastasiou believes that if Bitcoin adoption reaches a near-term inflection point, Strategy is well-positioned for further upside. The firm represents both a directional play on the spot price as well as the underlying volatility, two key characteristics that are demanded by equity and fixed income investors.

Strategy posted a fourth straight quarterly loss earlier this week, as the largest corporate holder of Bitcoin was hit with an impairment charge from digital assets of $1.01 billion. In the year-ago quarter, the Virginia-based group, formerly known as MicroStrategy, had booked an impairment charge of $39.2 million. Despite the losses, the firm has become one of the leading beneficiaries of the token's notoriety, with its shares skyrocketing by more than 540% in the last one-year period.