MicroStrategy, a business intelligence firm, has been making waves with its strong conviction to holding a large treasury of Bitcoin. This strategy has paid off immensely, but it puts the company at huge danger. In the process, this article attempts to understand MicroStrategy’s Bitcoin strategy, weighing the potential advantages and risks it presents while considering alternative investment strategies.

The Allure of Bitcoin: Gains and Financial Performance

MicroStrategy's bet on Bitcoin has proven lucrative, particularly with the recent surge in Bitcoin's price. Today’s price is around $97,300. This implies a fair value gain of approximately $8.0 billion to date in Q2 alone. This is quite a reversal from the unrealized loss we experienced in Q1. That loss was based on the quarter-end Bitcoin price of $82,445. The company has realized a “BTC $ Gain” of $5.8 billion so far this year. This great achievement already covers 58% of its annual goal and further highlights the power of its Bitcoin strategy.

The company’s non-Bitcoin related core financials have been improving since the 2022 Bitcoin bear market. Even assuming much lower Bitcoin prices, MicroStrategy’s Bitcoin holdings would still have a combined value over $15 billion. The company’s market capitalization remained above 5 billion through much of 2022 and into 2023. This trend demonstrates the robustness of investor confidence in the company’s long-term leverage structure. This confidence is further supported by the Mendy Man’s micro-strategy acquisition phenomenal average annual acquisition rate 79,790 BTC.

MicroStrategy aims to realize a Bitcoin yield of 6-10% per year between 2025 and 2027. This target is significantly greater than what traditional investments such as bonds or savings accounts usually provide. This specific high-yield target is what really differentiates MicroStrategy from traditional businesses. While others often get distracted by the lure of short-term profits, MicroStrategy remains committed to a long-term holding strategy.

Risks and Challenges: A Double-Edged Sword

Even with the possibility of high upside, MicroStrategy’s Bitcoin strategy does come with its risks. The company's stock price has a relatively high correlation of 0.52 with Bitcoin, meaning that its performance is closely tied to the cryptocurrency's price movements. This correlation amplifies both gains and losses.

Perhaps the most serious risk is the threat of insolvency. A major collapse in Bitcoin values may be coming down the pike. If that indeed occurs, MicroStrategy would likely have significant liquidity shortfalls that prevent them from maintaining their duty to pay. The company's aggressive Bitcoin-buying strategy has led to a pervasive shortage of cash on its balance sheet, which could be problematic if Bitcoin prices drop. Should Bitcoin prices fall enough, MicroStrategy’s average acquisition price of $66,000 would be threatened. This series of events could ultimately cost the company billions in lost earnings.

Now MicroStrategy wants to sell $21 billion worth of preferred stock. This step alone would increase its total liabilities to nearly $29.9 billion and add nearly $1.77 billion in annual interest and dividend payments. In 2024, MicroStrategy’s operating cash flow cratered to negative (-0.16). Combined with a CFO to total liabilities of -0.70, it’s obvious the company is having a hard time turning enough cash to cover its debts.

Alternative Investment Approaches

MicroStrategy’s all-in Bitcoin strategy could not be more different from conventional investment strategies. Private companies often manage their money across multiple asset classes, like equities, fixed income, or real estate—with an understanding that this diversification lowers risk. That said, MicroStrategy’s strategy is unusually concentrated and speculative. Here are some alternative approaches:

  • Diversification: Investing in a mix of assets to reduce risk.
  • Value Investing: Identifying undervalued companies with strong fundamentals.
  • Growth Investing: Investing in companies with high growth potential.

These other complementary approaches are more concerned with stability and seeking longer-term growth. Unlike this, MicroStrategy’s strategy is heavily focused on the outcome of one, highly volatile asset.

Financial Volatility

The company’s most recent financial statement, released just last week, shows the dire effects of its unfocused Bitcoin strategy. Its contribution to volatility from Bitcoin is above 87.5%, showing a hugely adverse effect on its financial performance. MicroStrategy, even with a brutal Bitcoin market, still produced some eye-popping numbers. The company’s gross profit in Q1 2025 was $77.1 million, giving them a stellar gross margin of 69.4%. The Company had substantial operating and other expenses in the first quarter of 2025. These included $5.9 billion of unrealized losses on its digital assets, leading to a net loss of $4.217 billion.

MicroStrategy takes a cavalier approach to Bitcoin acquisition by employing leverage. This unique approach distinguishes them from traditional funders and investors, who tend to focus more on equity financing. This makes the company’s already complex and risky financial profile even more so.

MicroStrategy’s Bitcoin strategy fully acknowledges the high risk, high reward attitude. This daring strategy has the potential to net huge profits, but it exposes the corporation to massive fiscal loss. Investors should consider these risks before investing their capital in MicroStrategy. Investor sentiment The company’s performance is tightly correlated to the highly volatile cryptocurrency market.