MicroStrategy May Surge on Bitcoin's Rise, Institutional Moves

Key Takeaway

• MicroStrategy's stock could surge due to Bitcoin's potential rise from two catalysts: increased institutional acceptance and the SEC's likely rejection of an ether ETF.
• Despite a Q1 net operating loss, positive feedback on MicroStrategy’s legacy software business suggests upside potential.
• Bitcoin up 43% YTD, hitting a new high above $73,000; currently at $63,000.

Bitcoin's Catalysts and MicroStrategy's Outlook

Bitcoin and MicroStrategy (MSTR) are poised for significant gains, driven by two major catalysts identified by TD Cowen analyst Lance Vitanza. Despite MicroStrategy reporting a net operating loss of $53.1 million for Q1 2024, due to a digital asset impairment charge of $191.6 million, the company's refusal to adopt a new digital asset fair value accounting standard has kept it from realizing profits from Bitcoin's early-year rally. Vitanza's insights, gleaned from MicroStrategy’s World 2024 forum, reveal a positive outlook on the company's legacy software business and its potential impact on the stock, which has already seen an 89% increase year-to-date.

Institutional Acceptance and SEC Decisions

The upcoming May 15 deadline for institutional investment managers to file form 13-F could reveal increased purchases of newly approved spot bitcoin ETFs, signaling further institutional acceptance of Bitcoin. Additionally, the anticipated SEC rejection of an ether ETF is expected to positively impact Bitcoin's value. Vitanza suggests that capital waiting for a "digital winner" may flow into Bitcoin, especially after the recent halving event, which could drive its price even higher.

Market Rebound and Security Confidence

Bitcoin's price has surged to near $65,000, marking a significant rebound and indicating strong market confidence. This resurgence is mirrored in the Grayscale Bitcoin Trust (GBTC), which saw its first inflow of $63 million in months, alongside a collective $368 million inflow into U.S.-listed spot ETFs. Meanwhile, Bitfinex's CTO Paolo Ardoino has dismissed security breach claims as "fake," reinforcing confidence in the platform's security amidst the market's upward trajectory.

Crypto Stocks and Market Dynamics

The ripple effect of Bitcoin's surge has boosted cryptocurrency-linked stocks, with Marathon Digital and Riot Platforms seeing notable gains. This trend is part of broader market movements, including significant developments in the tech and entertainment sectors, such as Apple's stock dip and Paramount's stock rise following acquisition news. The market's positive reaction to tech and crypto ventures underscores the growing investor interest in these areas.

Street Views

• Lance Vitanza, TD Cowen (Bullish on Bitcoin and MicroStrategy):

  "Bitcoin (BTC) has significant upside potential this month thanks to two big catalysts and Michael Saylor's MicroStrategy (MSTR) stock could surge, too, on its way toward getting 'meaningfully higher' by the end of the year." "This is causing us to rethink the potential upside around the operating business." "May 15 marks the deadline for institutional investment managers to file form 13-F with the Securities and Exchange Commission. If more firms are shown to have purchased the newly approved spot bitcoin exchange-traded funds during the first quarter, this will show bitcoin has gained further institutional acceptance." "Another event that could be positive for bitcoin and, thus, MicroStrategy, will be the SEC's likely rejection of an ether ETF... we believe there's a substantial amount of capital waiting for a digital winner to be declared; to the extent Bitcoin proves to be that winner, the incremental demand would likely be felt even more acutely given the recent bitcoin halving."