Don't Buy Strategy Stock When You Can Just Buy Bitcoin | The Motley Fool
Strategy(MSTR-4. 56%)andBitcoin(BTC+0. 65%)have both performed poorly this year. They have year-to-date losses of 38% and 29%, respectively. However, if you had to choose between these assets, Bitcoin is the. . .
Strategy(MSTR-4. 56%)andBitcoin(BTC+0. 65%)have both performed poorly this year. They have year-to-date losses of 38% and 29%, respectively. However, if you had to choose between these assets, Bitcoin is the better buying opportunity. Strategy functions as a leveraged bet on Bitcoin that doesn't make much sense in the long run, especially during a bearish crypto cycle. Here's why investors should opt for thecryptocurrencyitself rather than the stock that centers on Bitcoin. Image source: Getty Images. Equity and debt financing create a house of cardsStrategy seemed like a must-own stock in 2023 and 2024. The stock more than tripled from early September 2024 to late November of that year, showing the gains possible when Bitcoin rallied. Today's Change(-4. 56%) $-4. 46Current Price$93. 28However, the stock is down 80% from its all-time high. That's because going into debt anddiluting investorsto accumulate Bitcoin only works in a bullish market. Dilution doesn't yield as much Bitcoin when Strategy's price is dropping faster than Bitcoin. That's why Strategy's Bitcoin yield dropped from 9. 4% in the first quarter to 4. 5%. Strategy will gradually bear less fruit from equity and dilution. When debt becomes due, the company may have to sell Bitcoin to cover it. Strategy also had to sell 3,588 Bitcoins to fund dividends for its digital credit securities. These aren't dividends for retail investors, but it's an extra expense for a company that makes almost all of its revenue through its Bitcoin treasury model. Bitcoin investors can withstand a prolonged downturn much better than StrategyBitcoin gives investors more time to withstand acorrectionthan Strategy. Since Strategy relies heavily on dilution, it will have to issue more shares and sell more Bitcoin to meet its financial obligations if the asset continues to decline. Furthermore, Strategy's Bitcoin selling can put more downward pressure on the price and cause some people to leave Bitcoin. It's similar to theAI stockmargin unwind that caught Situational Awareness hedge fund owner Leopold Aschenbrenner by surprise. Strategy has no backup for generating revenue beyond diluting investors and hoping that Bitcoin continues to go up. It has a $3. 75 billion cash position that is designed to provide roughly 2. 1 years of coverage for dividends and interest. That comes to $1. 79 billion in annual costs without addressing the principal of corporate bonds. The company closed the second quarter with $6. 7 billion in debt. Strategy can only pay off its debt and keep up with costs by selling Bitcoin, diluting investors, or issuing more debt. That's not a winning formula in the long run, and selling Bitcoin can cause Strategy bulls to rush for the exits. CEO Michael Saylor's stance of never selling Bitcoin is part of the reason Strategy became a populargrowth stockin the first place. If you have to choose, Bitcoin is the safer pick. It's less vulnerable to sharp price movements and will survive even if Strategy's business model falls apart. Strategy needs Bitcoin, but Bitcoin doesn't need Strategy.