Better Buy: iShares Bitcoin Trust ETF or Strategy (MicroStrategy)?

Bitcoin (CRYPTO: BTC) continues to shine as the flagship cryptocurrency. Even with some volatility at the start of the year, Bitcoin's price has risen by over 9% since January and more than 60% during the past 12 months.

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The iShares Bitcoin Trust ETF (NASDAQ: IBIT) and Strategy (NASDAQ: MSTR), formerly known as MicroStrategy, have performed well in recent years, but which is the better buy today? Here is what you need to know.

Strategy's performance stands out in a big way

It's essential to understand the difference between these two stocks.

The iShares Bitcoin Trust ETF is a spot Bitcoin ETF, an exchange-traded fund that buys and holds Bitcoin on behalf of investors. It aims to track Bitcoin's market price, minus fees. It also makes life easier for investors who can buy or sell Bitcoin like any other stock via the ETF.

Strategy, a publicly traded company, is entirely different. It started in enterprise software and consulting but has evolved to build its business around Bitcoin, hoping to use it as capital in a digital economy. Strategy continually raises money to buy Bitcoin. As of May 5, the company owned 555,450 bitcoins. Bitcoin's price as of this writing is just under $103,000, valuing Strategy's Bitcoin reserves at $57.2 billion, roughly half of the company's $113 billion market cap.

Both stocks have done well since Bitcoin is up, but Strategy has been remarkable. Shares have surged over 670% since 2023, outperforming Bitcoin and the iShares Bitcoin Trust ETF:

IBIT Total Return Level data by YCharts

Can Strategy's dominance continue? It seems unlikely

While Strategy is technically a software company, that component only accounts for about $5 billion of its current $113 billion market cap. In practical terms, you could say that both Strategy and the iShares Bitcoin Trust ETF primarily derive their value from their Bitcoin assets.

That's OK if their value closely correlates with Bitcoin's. The iShares Bitcoin Trust ETF trades only 0.21% above the net asset value of its Bitcoin today. However, that's not the case for Strategy, which trades at an approximate 118% premium on a fully diluted basis.

You could put it this way: For each existing share of Strategy, there is $190 worth of Bitcoin. Yet, the stock trades at $416 per share. It doesn't take a math wizard to calculate what would happen if that massive premium crumbled.

Why are investors paying such a high price to own Strategy's stock? The stock's staggering past performance could be one reason. People tend to pile into winners. Additionally, Strategy is accumulating Bitcoin with plans to monetize it. Some could be investing in this aspect of the company. However, this is still a vision more than a business model. As a day-to-day business, Strategy operated at a loss in the first quarter of 2025.

Given all this, it's hard to have much confidence in the market continuing to pay such a premium for Strategy.

Which is the better buy?

Image source: Getty Images.

To make matters worse, Strategy continually issues stock and convertible bonds (debt) to raise the money to buy more Bitcoin. It backstops its fundraising with its Bitcoin reserves, which works unless Bitcoin's price falls and stays down long enough to force the company to liquidate its Bitcoin, or intensify share dilution by converting its debt or issuing stock at unfavorable prices.

So, this constant cycle of fundraising at increasingly higher prices, which has catapulted the stock to massive gains, could turn the other way and demolish the stock and investors. The ugly part of leveraged strategies (no pun intended) is that the sword can cut both ways.

Frankly, Bitcoin has been a tremendously successful investment over the years. There's no reason investors shouldn't just buy and hold the iShares Bitcoin Trust ETF, especially considering the risks that Strategy faces due to the bubble-like premium it trades at relative to its Bitcoin assets.

The iShares Bitcoin Trust ETF is far safer and a superior buy.

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Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.