Investing in MicroStrategy (MSTR) has been a roller coaster ride with no end in sight. The company, once an analytics software provider, switched gears two years ago to focus on buying and holding Bitcoin. With the world’s largest cache of the coins on its balance sheet, the company has taken on a significant amount of risk. With the stock trading heavily correlated to Bitcoin, the asset has become a leveraged exposure to the digital currency. While there is no shortage of opportunities when it comes to volatile assets, there are several risks to consider when investing in MicroStrategy.

Considering the company’s current financial situation, it is important to note that MicroStrategy has borrowed roughly $2.4 billion to purchase Bitcoin. As a result, the company’s tangible book value has plummeted well below zero. This could ultimately lead to a potential margin call, which could spell disaster for the company and its shareholders.

Furthermore, the company is also facing legal issues. Last week, the District of Columbia filed a lawsuit against the face of MicroStrategy, Michael Saylor, for potential tax evasion. The District is also going after MicroStrategy itself for allegedly helping Saylor evade taxes. While Saylor maintains he did not live in the District and therefore does not owe taxes, a guilty verdict could lead to hefty fines for both Saylor and MicroStrategy.

On top of this, the company’s future business plans are questionable. MicroStrategy is heavily reliant on Bitcoin and its price movements in order to make a profit. While the stock has seen huge gains in the past few years, the recent sell-off has caused many investors to question the company’s future. Also, it remains to be seen whether the company can make up the ~$11k average loss on each of its coins, or about $1.4 billion.

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In summary, investing in MicroStrategy has become a highly speculative endeavor with a lot of risk. The company’s leveraged exposure to Bitcoin, combined with the potential for hefty fines, makes it a risky investment. The future of the company remains unclear and it is uncertain whether the company will be able to make up its losses and provide any value to its shareholders.

Last updated on January 4, 2023
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Dennis is a business and financial writer, who had spent almost his entire life independently reporting on different business ventures with major impact on the US and global economy. Dennis places a special focus on examining tech stocks, biotech stocks all while investing a great part of his early hours to researching and writing on the companies in the US markets. Dennis has 15+ years of experience in financial markets.
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