Strategy's Stock Has Soared 40% in the Past Month as It's Buying Bitcoins Again
Key Points
Strategy acquired 950 Bitcoins this week, and it bought 4,603 at the end of August.
The company remains far and away the top corporate holder of Bitcoins.
The stock's performance is correlated to Bitcoin's, but its gains and losses are often more extreme.
Bitcoin (CRYPTO:BTC) has been rising recently, hitting levels it hasn't been at in months. On Tuesday, it was up around $86,000. Amid this excitement, one stock that's been going on for the ride is Strategy (NASDAQ:MSTR), whose business has centered around loading up on Bitcoins. While it was famous for claiming it would never sell, only to do so multiple times this year, it's back to buying again.
Strategy's stock has surged more than 40% in just the past month, as the excitement around crypto has investors bullish on it yet again. Could this be the start of a much larger rally for Strategy, or is it likely to give back some gains?
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Strategy's returns have typically been more extreme than Bitcoin's
Strategy and Bitcoin are highly correlated. When Bitcoin does well, so too does Strategy, but the tech stock's gains and losses are often more extreme. That can make it a tempting option for investors who are bullish on crypto, but it also means that it can be a far riskier investment.
Bitcoin Price data by YCharts
Accumulating Bitcoins has been a key part of Strategy's plans for years. While it did sell some of its digital holdings over the course of the summer, this week, it acquired 950 Bitcoins and 4,603 at the end of August. It's been back to buying, and its tally right now sits at 846,000 Bitcoins, easily making it the top corporate holder of the leading cryptocurrency. Thus, it's unsurprising that it will move sharply, depending on Bitcoin's valuation.
Strategy's hot right now, but that doesn't mean things will stay that way
The challenge with investing in Strategy is that it's a highly speculative and volatile stock. It can rally suddenly, but it can also crash just as quickly. So much is based on investor sentiment and how well Bitcoin is doing, making it a gamble for investors to put this stock into their portfolios. Valuation metrics are of little use as Strategy's earnings hinge heavily on its digital assets and whether they go up or down in value. In its most recent quarter, which ended on June 30, the company's unrealized loss on digital assets totaled more than $8.3 billion, while its revenue was just $122 million.
Bitcoin is already volatile and unpredictable. Strategy is even more extreme. It's a risky stock that I think investors are better off avoiding. While it can be tempting to buy into its current rally, it may very well end up crashing in the near future.
David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.