Adding Bitcoin Exposure: A Look at Two Stocks
Bitcoin, the flagship cryptocurrency, continues to captivate both seasoned and novice investors alike. Despite some volatility early in the year, Bitcoin’s resilience is evident, with its price increasing over 9% since January and soaring over 60% in the past year. As investors seek to diversify their portfolios with cryptocurrency exposure, two notable vehicles come to the forefront: the iShares Bitcoin Trust ETF (IBIT) and Strategy (formerly MicroStrategy, MSTR). Each offers distinct ways to tap into the Bitcoin market, but how do they stack up against each other?
Understanding the Investment Landscape
To grasp the potential of these two investment options, it’s crucial to understand their underlying structures and how they operate.
iShares Bitcoin Trust ETF
The iShares Bitcoin Trust ETF is a spot Bitcoin ETF. This type of exchange-traded fund directly purchases and holds Bitcoin on behalf of its investors, aiming to track Bitcoin’s market price while accounting for management fees. For investors uninterested in the intricacies of cryptocurrency wallets and exchanges, the IBIT ETF simplifies the investment process, allowing them to buy or sell shares just like any other stock. Its performance closely mirrors the fluctuating price of Bitcoin, making it a straightforward way to gain exposure.
Strategy: More Than Just Bitcoin
Conversely, Strategy operates under different dynamics. Originally rooted in enterprise software and consulting, it has transitioned to a business model centered around Bitcoin. The company continually raises capital to purchase Bitcoin, reflecting a bullish stance on the digital currency. As of May 5, Strategy holds an impressive 555,450 bitcoins. With Bitcoin’s current price hovering around $103,000, Strategy’s Bitcoin reserves are valued at approximately $57.2 billion—making up roughly half of its total market capitalization of $113 billion.
Performance Comparison
Both the iShares Bitcoin Trust ETF and Strategy have benefitted from Bitcoin’s upward trajectory; however, Strategy’s growth has been remarkable. Shares of Strategy have skyrocketed more than 670% since the beginning of 2023, significantly outperforming both Bitcoin and the IBIT ETF.
Historical Performance Analysis
While Strategy’s stock performance is mesmerizing, it’s paramount to consider the factors fueling this surge. The ETF has provided a reliable, albeit more stable, means of gaining Bitcoin exposure, directly paralleling Bitcoin’s market price with minimal divergence. This stability is a stark contrast to the dramatic price oscillations reflected in Strategy’s stock.
Is Strategy’s Premium Sustainable?
While Strategy appears enticing, investors should approach with caution. Although it presents itself as a software company, only about $5 billion of its market cap is derived from software revenue. The bulk of its value is tethered to Bitcoin, raising questions about sustainability.
Premium Risks
At present, the iShares Bitcoin Trust ETF trades only marginally above its net asset value, at 0.21%. In contrast, Strategy trades at an approximate 118% premium when evaluated on a fully diluted basis. For every share of Strategy, there is about $190 worth of Bitcoin, yet its stock price stands at around $416. Such a disparity could pose a significant risk if sentiment shifts, causing this premium to dissolve rapidly.
Market Sentiment and Future Trajectory
Why are investors willing to pay such a hefty price for Strategy’s stock? One reason could be its remarkable past performance, which often draws in investors seeking to capitalize on winning stocks. Some might be lured by the narrative of future profitability through Bitcoin accumulation, but it’s essential to note that this remains more of a vision than a well-defined business model. Recent financials reveal that Strategy operated at a loss during the first quarter of 2025.
The Dangers of Dilution
Another point of concern is Strategy’s practice of continually issuing stock and convertible bonds to fund Bitcoin purchases. This approach can backfire, especially if Bitcoin experiences a sustained decline. A plummeting Bitcoin price could force Strategy to liquidate some of its reserves or initiate unfavorable stock issuance, amplifying share dilution and adversely impacting investors.
Making the Investment Decision
In light of these considerations, serious doubts arise regarding whether the market will continue to support the high premium on Strategy’s stock. Bitcoin has shown itself to be a durable investment over time, and taking a position through the iShares Bitcoin Trust ETF might be the more prudent strategy. This ETF allows for straightforward exposure to Bitcoin while mitigating the risks associated with the volatility and speculative nature of Strategy’s business model.
Investors interested in Bitcoin exposure have viable avenues in both the iShares Bitcoin Trust ETF and Strategy. However, the ETF provides a safer, more stable option in an environment characterized by uncertainty and speculation surrounding cryptocurrency.
