In early trading on Tuesday, shares of Strategy (MSTR) increased by 1.5%, stabilizing around $301. This uptick comes in light of a recent note from Citi, which positioned Strategy as a direct beneficiary of Bitcoin’s potential long-term growth. Analysts at Citi projected that under their base scenario, Bitcoin could see a significant rise to $181,000, potentially driving a 25% to 35% net asset value (NAV) premium on Strategy’s stock.
The report highlighted that Strategy’s performance is significantly influenced by its Bitcoin exposure, typically displaying volatility that is 2.5 to 3.5 times greater than that of Bitcoin itself. While this creates the opportunity for substantial gains during bullish market conditions, it also poses risks, as the company could experience considerable losses in the event of a Bitcoin downturn.
Citi’s bear case is particularly concerning, indicating that shares of MSTR could plummet by 61% if Bitcoin were to decline by 25%, converting the NAV premium into a 10% discount.
Since 2020, Strategy, under the leadership of Executive Chairman Michael Saylor, has emerged as one of the most prominent corporate holders of Bitcoin. The company has strategically adjusted its balance sheet to accumulate Bitcoin, financing much of its acquisition through a combination of convertible debt, preferred equity, and stock issuance, which are contingent on market conditions and NAV premiums. Citi noted that this financial model is integral to Strategy’s growth strategy, allowing it to bolster its Bitcoin holdings amidst market fluctuations.
In a recent filing, Strategy revealed that it had acquired an additional 168 BTC at an average price of $112,051, increasing its total Bitcoin holdings to 640,418 BTC, which is now valued at over $72 billion in current market conditions.
Citi analysts recognized the importance of Strategy’s “Bitcoin yield,” referring to the year-to-date increase of Bitcoin per fully diluted share, as a vital factor influencing investor sentiment and NAV performance.
Looking ahead, consensus among Wall Street analysts paints a favorable picture for Strategy stock, with a Strong Buy rating based on 14 analyst ratings in the past three months, comprised of 13 buy recommendations and one sell. The average target price for MSTR over the next year is estimated at $544.27, indicating a potential upside of 79.08% from current levels.
