Right now, there are only a handful of companies with a market cap exceeding $1 trillion. With the exception of Warren Buffett's Berkshire Hathaway, all of them are high-growth tech stocks. So the natural assumption is that the next great $1 trillion company will be yet another tech company.
But what if the next $1 trillion company is a crypto company instead? That's the vision for MicroStrategy Inc.(NASDAQ: MSTR), which has absolutely soared in value as a result of its massive Bitcoin(CRYPTO: BTC) holdings. For the year, MicroStrategy is up a resounding 264%, and since 2020, it has outperformed every single S&P 500 stock. So is MicroStrategy really on track to become the first $1 trillion crypto stock?
The path to $1 trillion
The first thing you need to know about MicroStrategy is that it holds 252,220 Bitcoins on its balance sheet, worth a cumulative total of $17 billion at today's prices. This makes MicroStrategy easily the largest corporate holder of Bitcoin in the world. In fact, MicroStrategy now holds over 1% of all Bitcoin in circulation today.
The company shows no signs of stopping anytime soon. MicroStrategy has been on a Bitcoin buying spree since 2020, and makes regular Bitcoin purchases nearly every month. If anything, MicroStrategy is now ramping up its purchases of Bitcoin. The company's newest strategy is to issue convertible debt as a way to buy even more Bitcoin in the future.
The path to $1 trillion is actually remarkably simple: Buy as much Bitcoin as possible, and wait for it to appreciate in price. Given that Michael Saylor, founder and executive chairman of MicroStrategy, now thinks that Bitcoin can hit $13 million by the year 2045, a trillion-dollar valuation is certainly within the realm of possibility.
From software company to investment bank?
In October, Saylor outlined a brand-new strategy. The plan, quite simply, is to transform MicroStrategy from an enterprise software company into an investment bank. As Saylor notes: "The endgame is to be the leading Bitcoin bank, or merchant bank, or you could call it a Bitcoin finance company."
Image source: Getty Images.
As part of this strategic transformation, MicroStrategy will begin to create new Bitcoin capital market instruments. From a broad conceptual standpoint, think of MicroStrategy as a giant Wall Street investment bank doing everything that a Goldman Sachs or Morgan Stanley does, but with Bitcoin instead of dollars.
Saylor sees Bitcoin eventually becoming a $100 trillion asset class, and he wants to be at the forefront of everything happening with Bitcoin in the global financial markets. As he sees it, it's a lot more profitable if you're getting paid in Bitcoin instead of dollars, and a lot safer from a risk management perspective if you're dealing with Bitcoin-denominated assets instead of dollar-denominated assets.
Just how likely is this scenario?
The idea of MicroStrategy becoming a trillion-dollar company sounds far-fetched, right? After all, MicroStrategy is just a $50 billion company right now. And, for now, MicroStrategy is just an enterprise software company, not some kind of Bitcoin investment bank.
But here's the thing: The math behind the $1 trillion valuation actually works if you make one key assumption. Given that MicroStrategy is basically a Bitcoin proxy stock right now, all you need is for the price of Bitcoin to soar 20-fold. Given the company's current valuation of $50 billion, that's what helps to get you to a $1 trillion valuation.
There are plenty of price forecasts out there calling for Bitcoin to do exactly that. For example, Cathie Wood of Ark Invest thinks that Bitcoin will easily hit a price of $1 million by 2030. In fact, in April, she upped her Bitcoin price forecast to $3.8 million. Given Bitcoin's current price of $68,725, there's your 20-fold valuation boost right there.
The problem with Bitcoin price forecasts
However, outside of the crypto market, how many people really think that Bitcoin is going to hit a price of $1 million by 2030? For that to happen, Bitcoin needs to grow at a compound annual growth rate of 70% over the next five years.
As we know from prior experience, Bitcoin tends to have years when it loses more than half of its value. In 2022, for example, Bitcoin fell by 65%. So it's a bit naive to assume that Bitcoin's price trajectory will be a nice, upward-sloping curve for years to come.
Should you buy MicroStrategy?
The decision of whether or not to buy MicroStrategy really comes down to your view about the future of Bitcoin. If you think that Bitcoin will continue to soar in value, then MicroStrategy should as well. That makes the company enticing as an investment target.
Just keep in mind that if the price of Bitcoin ever declines significantly, it could have long-lasting negative repercussions for any company as highly leveraged to Bitcoin as MicroStrategy is.
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Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
