Why I bought these cheap stocks for exposure to Bitcoin

I like cheap stocks. I also like the risk/reward ratio offered by cryptocurrency. This American company’s war chest of 140,000 Bitcoins gives me an excellent entry on both.

Micro strategy (NASDAQ: MSTR ) is a monochrome company with a colorful flourish. While market saturation has hampered growth, the IT consulting firm has produced reliable annual revenues of ~$500 million over the past 12 years along with consistent profits.

During the pandemic, founder and CEO Michael Saylor sought to protect the company’s cash reserves from the increasingly inflationary environment. In November 2020, Saylor used half of MicroStrategy’s existing cash to buy 21,454 Bitcoins. The technologically favorable conditions in the market at the time – which included Elon Musk’s high-profile purchase of $1.5 billion of Bitcoin through Tesla — sent MicroStrategy’s stock soaring, rising 600% from $184 to $1,315 in just three months.

Since then, sentiment towards MicroStrategy and Bitcoin has cooled. The prices have fallen to $294 and $28,000 respectively, which equates to a stock-to-Bitcoin ratio of 0.0107. In contrast, this same ratio was at 0.0274 in February 2021 during MicroStrategy’s peak.

This number is significant, as the price of MicroStrategy stock moves in step with the underlying price of the crypto-asset: if the price of Bitcoin rises or falls, MicroStrategy will follow the same trend.

Therefore, any bet on MicroStrategy is a bet on two things: the price of Bitcoin and the relative price of one MicroStrategy share vs. one Bitcoin.

I believe that both could be the case and that MicroStrategy provides me with an excellent opportunity to buy cheap stocks and capitalize on exposure to a crypto asset that is expected to see strong gains in the medium term.

While the price of Bitcoin has risen in 2023, the next significant milestone will not come until sometime in April or May 2024 with its next “halving” – a technical event that occurs approximately every four years when the 210,000 are created (or “mined”)^th block in its blockchain.

The Bitcoin network is supported by a decentralized network of miners who maintain the integrity of the blockchain in return for mining rewards. A halving causes future rewards to be “halved”: in the next case, from 6.25 BTC per block to 3.125. This decrease in supply creates a deliberate increase in scarcity of the asset, which has historically triggered Bitcoin’s three previous bull runs.

The last three halvings, in November 2012, July 2016 and May 2020, produced 12-month returns of 10,000%, 700% and 300% respectively. While the yield scales have been declining for each four-year interval, crypto enthusiasts are still hoping for a triple-digit percentage increase from 2024-2025.

However, with high returns comes high risk. Cryptocurrencies are considered some of the most volatile and uncertain assets available, and all investors – MicroStrategy included – should proceed with caution.

This level of market hesitancy around Bitcoin exposure underpins the rationale for why MicroStrategy stock is currently so cheap. I own shares in MicroStrategy because I believe I have the right appetite for risk over the long term.

The content of this article is provided for informational purposes only. It is not intended to be, nor does it constitute, any form of investment advice. Bitcoin and other cryptocurrencies are highly speculative and volatile assets, which have several risks, including total loss of invested money. Readers are responsible for conducting their own due diligence and for obtaining professional advice before making investment decisions.