MicroStrategy stock has advantages over planned spot bitcoin ETFs: Saylor

MicroStrategy founder Michael Saylor seems unafraid of spot bitcoin ETFs making his company’s stock obsolete if and when they launch.

Rather, the executive believes that the approval of such funds, which the Securities and Exchange Commission has not previously permitted, would be “a catalytic event” that could benefit entities in the segment, including MicroStrategy.

While certain types of investors would gravitate toward bitcoin ETFs, MicroStrategy stock offers a way to get bitcoin exposure with benefits such funds won’t offer, Saylor argued during MicroStrategy’s third quarter earnings webcast Wednesday.

Spot bitcoin ETFs would provide an onramp for Wall Street capital to enter the bitcoin ecosystem, Saylor explained. Institutional investors might be more willing to learn about the asset class if and when financial giants like BlackRock, Fidelity and Invesco — each with proposals in front of the SEC — bring bitcoin ETFs to market.

“I think we’ll see more and more analyst coverage from traditional Wall Street banks as these ETPs make bitcoin exposure available,” Saylor said. “More coverage means more education, means more awareness, and that results in more interest.”

But while spot bitcoin ETFs would be “a big milestone in the institutional adoption of bitcoin as an asset class,” Saylor notes, they would only “complement” other access points to bitcoin (BTC).

One is MicroStrategy stock, which has served as a bitcoin proxy for a number of investors given it’s the largest publicly traded corporate holder of bitcoin.

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MicroStrategy has bought 6,067 bitcoins since the end of the second quarter, the company said Wednesday. It held 158,400 BTC, as of Oct. 31 — bought for nearly $4.7 billion, or $29,586 per bitcoin.

The company’s commitment to buying more bitcoin, and holding it, “remains strong,” Chief Financial Officer Andrew Kang said in a statement.

“We’re committed to our bitcoin operating model and being a hybrid enterprise software company and bitcoin company…to provide our investors with a unique opportunity to get long bitcoin exposure in an intelligent fashion,” Saylor said on the webcast.

MSTR versus a spot ETF

Matthew Weller, global head of research at StoneX, previously told Blockworks that a low-cost spot bitcoin ETF could cause much of the demand for MicroStrategy stock to “dry up.”

But many investors will continue to choose MicroStrategy stock over a spot ETF “as an optimal vehicle for exposure to bitcoin,” according to Lance Vitanza, managing director of equity research at TD Cowen.

Unlike buyers of MicroStrategy stock, investors in bitcoin ETFs will pay a management fee — though issuer proposals have not yet specified what those will be. The ProShares Bitcoin Strategy ETF (BITO), which invests in bitcoin futures contracts, carries an expense ratio of 0.95%.

“A spot ETF will charge investors a material amount that will dilute returns meaningfully over time,” Vitanza told Blockworks. ”Why would a prudent investor want to give up such a large portion of his or her return potential?”

MicroStrategy also has a “lucrative” software business that can mitigate risks associated with bitcoin, the TD Cowen analyst argued. Third-quarter revenues from the company’s software licenses and subscription services were $45 million and $21 million, respectively.

The company’s net loss was about $143 million from July to September. Impairment losses on the company’s digital assets reached nearly $34 million for the three-month span.

“From the standpoint of intrinsic value, any downside move in BTC will be partially offset by the stability of the underlying business,” Vitanza said. “Spot ETFs offer no such protection.”

MicroStrategy has outperformed the asset it holds so much of.

The firm started its bitcoin acquisition strategy on Aug. 10, 2020. From then, until Oct. 31 this year, bitcoin and MicroStrategy stock are up 192% and 242%, respectively, according to the company.

MicroStrategy stock was up roughly 197% year to date at 1 p.m. ET Thursday — outpacing bitcoin’s price rise of about 108% so far in 2023.

“We’ve created a unique investment vehicle,” Saylor said Wednesday. “It’s certainly not the only appropriate investment vehicle, and there are other investment vehicles that will be more appropriate to a different class of investors.”

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