“The death of Bitcoin” has become something of a meme in crypto circles, given the many times the leading cryptocurrency has been pronounced, well, dead. But now there might be the stock market’s equivalent, and fittingly enough, that company is Bitcoin-hoarder Strategy (NASDAQ:MSTR).
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That seems to be the gist behind the latest commentary from Benchmark analyst Mark Palmer, who says the recent drop in Bitcoin’s price and the corresponding pullback in MSTR stock (down 48% over the past 3 months) have brought back a familiar question circulating in financial and social media: “is the company doomed?”
That narrative has cropped up before during Bitcoin downturns, including after FTX collapsed in late 2022, and it’s resurfacing now among commentators who, Palmer thinks, mistake short-term price swings for Strategy’s “long-term solvency risk.” Unsurprisingly, says Palmer, much of the loudest alarm-raising is coming from people who are clearly not familiar with how the company actually operates. “At the same time,” Palmer went on to say, “we believe Strategy’s stock remains one of the most powerful asymmetric vehicles in global markets because its balance-sheet architecture, capital-raising engine, and bitcoin-linked reflexivity give it upside torque that no other equity can match.”
To see why the Strategy-is-doomed argument doesn’t hold up, the analyst thinks it helps to look at the company’s capital structure alongside its Bitcoin holdings (~650,000), currently worth about $55 billion. Strategy has $8.2 billion in convertible bonds with an average maturity of 4.4 years and a blended interest rate of 0.421%, plus five perpetual preferred stock issues totaling $7.6 billion. Altogether, its annual obligations come to $779 million – $35 million in interest on the convertibles and $744 million in preferred dividends. “While the company’s detractors cite this figure as if it represents an existential threat, we view it as quite manageable relative to its balance sheet and market presence,” Palmer said on the matter.
Additionally, Strategy’s ability to tap the perpetual preferred market – and to issue five separate classes of Bitcoin-linked perpetual preferred stock – has become one of its “defining strategic advantages.” Perpetual preferred stock is especially well suited for a Bitcoin treasury model because it provides something no standard bond, loan, or convertible security can offer: permanent capital. Since they have no maturity date, they remove the “refinancing cliff” that Palmer sees as one of the biggest risks for digital asset treasury companies that rely on debt-like funding to support their accumulation strategies.
A recurring question in the recent pullback is how far Bitcoin would need to fall before Strategy faced serious trouble. Put simply, says Palmer, the company couldn’t fully cover its roughly $8.2 billion in convertible debt if Bitcoin dropped below $12,700 and stayed there – an ~85% decline from current levels. Although bitcoin has seen 80%+ drawdowns before, it would likely take several major macro shocks happening at once to push it that low now, particularly with institutional investors rather than retail traders serving as the cryptocurrency’s “marginal buyers.”
So, what does all this ultimately mean for investors? Palmer reiterated a Buy rating on the shares, along with a Street-high $705 price target, implying the stock will appreciate by a hefty 350% over the next year. (To watch Palmer’s track record, click here)
The Street’s average target is a more modest $524.08, although that figure still factors in a 12-month surge of 235%. All told, the stock claims a Strong Buy consensus rating, based on a mix of 12 Buys vs. 2 Holds. (See MSTR stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.