Why Strategy Stock Bounced Back Today
Key Points
Strategy stock rose 22.8% on Friday as Bitcoin prices rebounded from Thursday's plunge.
Executive chairman Michael Saylor says the company's debt covenants would survive a 90% Bitcoin crash.
Thursday's Bitcoin drop followed weak economic data that spooked investors in high-risk assets, followed by a quick rebound
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Shares of Strategy (NASDAQ: MSTR) took a deep dive on Thursday as Bitcoin (CRYPTO: BTC) prices plunged. Friday saw a reversal of these tightly paired market moves. At 2 p.m. ET, Strategy's stock was up by 22.8% and Bitcoin had gained 10.3% over the same period.
Bitcoin sneezes, Strategy catches pneumonia
Strategy's stock is back to prices not seen since, you know, Wednesday afternoon. It's still down 71% from last summer's all-time high. Bitcoin has dropped 50% from last October's peak.
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This used to be a data analytics software company, but Strategy has revamped its business plan. Management sees Strategy as "the largest corporate holder of Bitcoin and the world's first Bitcoin treasury company" above all else. It holds 713,502 Bitcoins on the balance sheet, worth $49.9 billion at current crypto prices. Strategy's stock trades at a significant discount to these digital holdings with a market cap of $31.0 billion and enterprise value of $43.8 billion.
So any change in Bitcoin's price is almost certain to prompt a similar move in Strategy's stock. Yesterday, Bitcoin fell on weak economic data reports, which resulted in widespread price cuts to high-risk investments. Today, the market is pulling back from what may have been an overreaction on Thursday.
Image source: Getty Images.
Michael Saylor's "Bitcoin forever" philosophy
Normally, I would lead with the fact that Strategy published its fourth-quarter results last night. These reports often have market-moving power, as investors get their hands on fresh financial data.
But the earnings report wasn't the chief price driver this time. Q4 was a mixed bag, with heavy bottom-line losses despite modest revenue growth. If anything, the quarterly report gave executive chairman Michael Saylor an opportunity to explain his Bitcoin thinking in greater detail.
Saylor highlighted his "indefinite Bitcoin horizon," where the digital currency should gain value against old-school dollars in the long run. On the earnings call, he stated that Strategy's debt covenants would remain safe even if Bitcoin saw an overnight 90% price drop.
What's good for the Bitcoin goose is good for the Strategy gander, and you're watching this volatile relationship play out in the market this week, both for the better and for the worse.
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Anders Bylund has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
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