Last Update07 Jul 25
MicroStrategy, now rebranded as Strategy, continues to execute its radical evolution from enterprise software firm to Bitcoin-native financial platform. In Q2 2025, the company reported an eye-catching $14.5 billion in unrealised profit under the newly adopted fair value accounting standard.
This was the first full quarter in which Bitcoin appreciation flowed through to the income statement, giving the company GAAP net profitability for the trailing 12 months. While these gains are non-cash and reflect Bitcoin price movements rather than operational cash flow, they meet formal accounting standards and, critically, clear the final hurdle for potential inclusion in the S&P 500.
With this, Strategy now qualifies for consideration in America’s most tracked index. According to independent estimates, it has generated over $11 billion in net profit over the past year due to fair value gains. Although inclusion is not guaranteed (the S&P committee exercises full discretion) Strategy’s eligibility means that any S&P 500 index investor could soon gain indirect Bitcoin exposure through the company’s shares. This would mark a milestone moment: the first time Bitcoin becomes a part of the S&P 500, even if by proxy.
Since this thesis was first published in late 2024, Bitcoin has been consolidating around that level. As expected, we are now in a supply rotation phase, with long-term holders from the 2011 to 2013 cycle selling into strength while ETFs and institutions absorb that supply.
Strategy has remained committed and has expanded its capital plans, moving from the original 21 21 Plan to an even more ambitious 42 42 Plan, targeting $84 billion by the end of 2027 to grow its Bitcoin treasury. Notably, the company has not issued any new shares or preferred equity since June, preserving over $40 billion in ATM capacity as dry powder for future Bitcoin acquisitions.
The rebrand to Strategy reflects more than a name change. It marks the company’s shift from software vendor to Bitcoin financialisation platform. Through instruments like Strike and Strife preferred shares, Strategy is pioneering new ways to raise capital without immediately diluting existing shareholders. This positions the company as more than a corporate holder of Bitcoin; it is now an active financial architect of Bitcoin-native capital structures.
The regulatory environment has also moved in Strategy’s favour. Following the Republican victory in the 2024 US elections, crypto-friendly figures like Chris Bessent have taken Treasury roles, and a new SEC Chair with a supportive stance toward digital assets has been appointed. Michael Saylor has attended several White House events alongside key industry leaders, reinforcing the firm’s political alignment.
Meanwhile, the passing of the GENIUS Bill has established a regulated framework for stablecoins, and a second wave of pro-Bitcoin legislation, led by Senator Cynthia Lummis, is progressing. Most significantly, the US government has committed to holding Bitcoin as a strategic reserve asset, starting by freezing all current holdings and exploring ways to acquire more—such as through Bitcoin-backed bonds—without adding pressure to the federal deficit.
However, Strategy is no longer the only firm executing this playbook. A wave of Bitcoin treasury companies has emerged, most notably Twenty One Capital (NASDAQ: XXI), which now holds over 42,000 BTC and is backed by Tether, SoftBank, and Jack Mallers. These companies are replicating Strategy’s capital structure with PIPE deals, convertible notes, and speculative issuance, showing that the demand for public Bitcoin exposure is broadening.
A word of caution... Treasury Bubble Risk?
This trend also introduces risk. Many of these new Bitcoin treasury companies operate less like businesses and more like speculative vehicles, relying on continuous capital inflows rather than revenue. If sentiment shifts or liquidity dries up, forced selling from multiple firms could trigger a sharp downturn in Bitcoin, which would affect Strategy’s mark-to-market valuation as well. The risk is now systemic. While Strategy remains the most structurally sound and seasoned of these firms, it is no longer isolated and may still feel the effects if the broader Bitcoin treasury trend turns from asset accumulation to liquidation.
Despite these risks, the investment case remains intact. My base case fair value of $663 per share remains unchanged, based on partial execution of the 42 42 Plan and continued Bitcoin appreciation. After the current consolidation resolves and selling pressure from early holders abates, I expect Bitcoin to resume its long-term upward trend. For investors with conviction in Bitcoin’s trajectory, Strategy continues to represent the most asymmetric and compelling vehicle to gain exposure—now with the added tailwind of profitability, regulatory alignment, and potential S&P 500 inclusion.
Company Overview
MicroStrategy, originally an enterprise analytics software provider, underwent a seismic transformation under the leadership of Michael Saylor. Once competing with industry giants like IBM and Oracle, its core software business faded in relevance long before the company embraced a bold and unconventional strategy: Bitcoin acquisition. Since 2020, MicroStrategy has emerged as the largest corporate holder of Bitcoin, positioning its shares as a leveraged proxy for the cryptocurrency. While the software business remains operational, it has become a marginal contributor to the company’s overall valuation.
In the past year, MicroStrategy has cemented its reputation as the ultimate Bitcoin beta play, delivering unparalleled returns. While Bitcoin has risen 135% year-to-date, MicroStrategy's stock surged an astonishing 740% at its peak. In just one month, the stock experienced a dramatic 142% rally, only to plunge 37% within days.
This extreme volatility underscores a critical characteristic of MicroStrategy’s stock: it not only tracks Bitcoin but amplifies its movements, often outperforming the cryptocurrency by a significant margin. This dynamic is reflected in the company’s valuation. Despite Bitcoin holdings worth approximately $36.7 billion, MicroStrategy’s current market capitalization exceeds $92 billion—a disparity far too vast to be attributed to its legacy software business. Effectively, MicroStrategy has evolved into a Bitcoin volatility amplifier.
The company’s strategy revolves around a cyclical approach: issuing debt, purchasing Bitcoin, and leveraging subsequent stock price appreciation to repeat the cycle. While this aggressive model has drawn praise for its audacity, critics have likened it to a Ponzi-like scheme, citing concerns over its heavy reliance on debt and high financial leverage.
Financials: Bitcoin as a Reserve Asset and NAV Premium
MicroStrategy started accumulating Bitcoin in August 2020 with an initial purchase of 21,454 BTC for $250 million. This marked the beginning of an aggressive Bitcoin acquisition strategy funded by convertible debt and equity issuances. By 2024, the company had amassed 386,700 BTC at an average purchase price of $37,682 per coin, representing over 1.8% of Bitcoin's total supply.
https://bitcointreasuries.net/
Understanding the NAV Premium
The Net Asset Value (NAV) premium reflects the difference between the market valuation of MicroStrategy’s shares and the value of its Bitcoin holdings. For instance, with Bitcoin trading at $100,000 and MicroStrategy holding 386,700 BTC, its NAV would be approximately $38.67 billion. However, due to speculative interest and the company’s positioning as a leveraged Bitcoin proxy, its market capitalisation often trades at 2–3x its NAV. This premium highlights investor confidence in MicroStrategy's strategy to amplify returns through Bitcoin accumulation and financial engineering, though it also introduces the risk of overvaluation if sentiment shifts.
...and Bitcoin Yield
MicroStrategy introduced the concept of Bitcoin yield, defined as the growth in Bitcoins per share. This metric is achieved by issuing shares at a premium to NAV and using the proceeds to purchase more Bitcoin. For example, selling $1 billion of shares at a 200% NAV premium allows the company to acquire up to 3x the equivalent amount of Bitcoin at market prices. While this increases the floor value of Bitcoin per share for existing investors, it comes at the cost of dilution for new shareholders. Essentially, Bitcoin yield is a transfer of value from new shareholders to existing ones, facilitated by the NAV premium.
Debt Offerings: Low Cost Financing
MicroStrategy continues to leverage its stable but declining software business, which generated $496 million in revenue from product licenses, subscriptions, and services in 2023, as a baseline for its operations. Beyond this, the company has aggressively raised capital through equity and debt markets, securing over $2 billion via at-the-market (ATM) share offerings in 2023 and 2024. This effort culminated in the announcement of the ambitious "21/21 Plan" in October 2024, which aims to raise $21 billion through equity issuances and an additional $21 billion via fixed-income securities over the next three years.
Among its fundraising strategies, convertible senior notes stand out as the most innovative. These instruments, which blend features of bonds and equity, offer investors the option to convert debt into shares. Typically, such notes include an interest payment or coupon, but MicroStrategy’s latest $3 billion offering broke convention. Not only was it unprecedented in scale, but it also carried a 0% coupon, effectively allowing the company to borrow without paying interest. The conversion price of $672 per share represented a 55% premium over the stock’s market price at issuance, reflecting strong investor confidence in Bitcoin's potential.
This bold approach enables MicroStrategy to fund its Bitcoin acquisitions while minimizing short-term interest costs. However, the eventual conversion of these notes into equity at specified thresholds dilutes existing shareholders, highlighting the trade-offs inherent in the company’s capital-raising strategy.
Growth Catalysts
- Bitcoin Price AppreciationIf Bitcoin continues its upward trajectory, MicroStrategy’s amplified exposure through its leveraged strategy could yield outsized gains, attracting even more speculative interest.
- The $42 Billion '21/21 Plan'MicroStrategy’s ambitious "21/21 Plan" aims to raise $42 billion over the next three years, split evenly between equity offerings and fixed-income securities. The capital will be used to purchase additional Bitcoin, targeting holdings of over 386,700 BTC by 2027. This plan reflects the company’s commitment to aggressive Bitcoin accumulation and its confidence in the cryptocurrency’s long-term value.
- 2025: $10 billion planned ($5 billion equity, $5 billion bonds).
- 2026: $14 billion planned ($7 billion equity, $7 billion bonds).
- 2027: $18 billion planned ($9 billion equity, $9 billion bonds).
- 2025 Accounting Change: Fair Value Method for BitcoinStarting in 2025, a new accounting standard will allow companies to report Bitcoin holdings at fair market value instead of the current cost-basis method. For MicroStrategy, this change means its financial statements will more accurately reflect the value of its Bitcoin holdings, especially during price increases. This could enhance investor confidence, reduce confusion about the company’s true value, and potentially attract new institutional interest.
- Bitcoin Services and Banking AspirationsAs part of its future vision, MicroStrategy is exploring Bitcoin-based financial services, such as custody, lending, and payment solutions. This could position the company as a leader in Bitcoin banking, creating new revenue streams and solidifying its market dominance.
Risks
- Bitcoin Volatility and Market Sentiment MicroStrategy's reliance on Bitcoin as its primary asset exposes it to extreme price volatility. While Bitcoin's potential for long-term appreciation is significant, any sharp decline in its value could erode MicroStrategy’s NAV and lead to a collapse in its market capitalisation. Historically, MicroStrategy’s shares have amplified Bitcoin’s movements, resulting in both outsized gains and severe losses. If sentiment around Bitcoin shifts negatively, MicroStrategy’s leveraged position could exacerbate losses.
- Dilution and Shareholder Value The company’s frequent issuance of shares and convertible debt, often at premiums to NAV, helps fund its Bitcoin acquisitions. While this strategy can increase the Bitcoin-per-share metric for existing shareholders, it comes at the cost of dilution for new investors. This dynamic, while attractive during bullish periods, creates risk during bearish markets, as dilution reduces the value of individual holdings.
- NAV Premium Compression MicroStrategy’s shares often trade at a significant premium to the NAV of its Bitcoin holdings. This premium reflects speculative investor confidence in the company’s ability to amplify Bitcoin returns. However, if sentiment shifts or the NAV premium contracts—such as when alternative Bitcoin investment vehicles like ETFs become more popular—investors could face sharp declines in share prices.
- Leverage and Debt Risks MicroStrategy employs a high-leverage strategy, with convertible debt playing a key role. While the company has successfully raised funds at low interest rates, this debt eventually converts to equity, diluting shareholders. Moreover, reliance on the NAV premium for favorable financing terms may falter during market downturns, leaving the company unable to raise capital effectively.
- Margin Call Risk While MicroStrategy has eliminated collateralized loans for its Bitcoin holdings, the possibility of future leverage tied to Bitcoin prices could reintroduce margin call risks. Analysts estimate that if Bitcoin prices were to fall below $15,000, the company might be forced to liquidate some of its holdings to maintain financial stability, significantly impacting investor confidence.
- Regulatory Challenges As a publicly traded entity heavily invested in Bitcoin, MicroStrategy is exposed to regulatory risks. Adverse developments, such as stricter cryptocurrency regulations or taxation policies, could limit the company’s ability to acquire, hold, or sell Bitcoin effectively. This could also impact Bitcoin's market value and liquidity, further straining MicroStrategy's strategy.
- Operational Risks and Misconceptions The company’s reliance on complex financial instruments like convertible debt introduces misunderstandings about its financial health. For instance, some investors incorrectly view convertible bonds as non-dilutive or believe in an "infinite money glitch" where Bitcoin price increases perpetually fuel further acquisitions without downside. Such misconceptions may inflate speculative interest, setting the stage for market corrections as realities unfold.
- Banking Aspirations and Execution Risks MicroStrategy’s ambitions to evolve into a Bitcoin-based financial services provider introduce new execution risks. While such a transition could open new revenue streams, it also requires navigating a highly competitive financial sector dominated by established players with robust infrastructure and customer trust. The lack of experience in banking could hinder the company's ability to realise these aspirations effectively.
- Liquidity Constraints During market downturns, MicroStrategy’s ability to raise funds via equity or debt could diminish significantly, leaving it unable to sustain its Bitcoin acquisition strategy or meet its debt obligations. This could force the company into unfavourable asset sales or financial restructuring.
Valuation Analysis
Valuing MicroStrategy remains the ultimate $1,000,000 question. It represents a completely unique investment concept, directly tied to the performance of a highly volatile digital commodity: Bitcoin. As a leveraged beta play on Bitcoin, MicroStrategy introduces not only the inherent risks of Bitcoin’s volatility but also the amplified exposure from its aggressive financial strategies.
Using a range of scenarios, I’ve modelled potential outcomes for MicroStrategy’s valuation based on future Bitcoin prices, expected BTC holdings, share dilution, and its NAV premium multiplier. Here’s how these scenarios play out in 5 years time (2029):
- Best Case Scenario Bitcoin becomes a global reserve asset adopted by governments.
- BTC Price: $1,000,000
- BTC Held: 526,700
- Market Cap: $2.1 trillion
- Price Per Share: $6,218 (adjusted for dilution)
- Probability: 10%
- Bullish Scenario Successful execution of the 21/21 Plan with institutional adoption of Bitcoin.
- BTC Price: $450,000
- BTC Held: 554,700
- Market Cap: $500 billion
- Price Per Share: $1,751
- Probability: 20%
- Base Case Scenario Partial execution of the 21/21 Plan with moderate institutional adoption.
- BTC Price: $300,000
- BTC Held: 420,033
- Market Cap: $189 billion
- Price Per Share: $663
- Probability: 40%
- Bearish Scenario 21/21 Plan faces challenges, and Bitcoin drops in price.
- BTC Price: $60,000
- BTC Held: 396,700
- Market Cap: $23.8 billion
- Price Per Share: $105
- Probability: 20%
- Worst Case Scenario BTC price collapse, MSTR fails to execute the 21/21 Plan, relies on debt, and liquidates BTC to service obligations.
- BTC Price: $30,000
- BTC Held: 340,000
- Market Cap: $2.1 billion
- Price Per Share: $10 (bankruptcy)
- Probability: 10%
I don’t subscribe to a single scenario, nor am I betting exclusively on one outcome. I anticipate the reality will likely fall somewhere between my bullish and bearish scenarios, making the 'base case scenario' the most probable in my view.
One thing is absolutely certain: MicroStrategy’s stock will remain extremely volatile, with wild swings driven by Bitcoin’s price movements and speculative market sentiment. For investors anticipating institutional adoption and a long-term upward trajectory for Bitcoin, MicroStrategy offers immense upside potential, especially in bull markets.
Assuming Bitcoin appreciates to $300,000 within the next few years, and MSTR partially executes the 21/21 plan, MicroStrategy’s fair value could reach $663 per share, with the potential for higher prices during speculative peaks.
For Buy-and-Hold investors, this is not a stock for the faint-hearted. Over the next decade, MicroStrategy’s performance will demand extraordinary resilience. The stock’s volatility will test even the strongest long-term convictions, making it a challenging hold for those without a deep belief in Bitcoin’s sustained growth.
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Disclaimer
BlackGoat is an employee of Simply Wall St, but has written this narrative in their capacity as an individual investor. BlackGoat has a position in NasdaqGS:MSTR. Simply Wall St has no position in any companies mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. This narrative is general in nature and explores scenarios and estimates created by the author. The narrative does not reflect the opinions of Simply Wall St, and the views expressed are the opinion of the author alone, acting on their own behalf. These scenarios are not indicative of the company's future performance and are exploratory in the ideas they cover. The fair value estimate's are estimations only, and does not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that the author's analysis may not factor in the latest price-sensitive company announcements or qualitative material.
