Strategy's bitcoin holdings could more than double to over 1 million BTC — around 5% of the cryptocurrency's total 21 million supply — according to Bernstein's "bull case scenario."

Analysts at the research and brokerage firm led by Gautam Chhugani updated their model for the bitcoin treasury company formerly known as MicroStrategy following its Q4 financial results and latest BTC acquisitions. In their latest note to clients, they rated the firm as outperform, with a price target of $600 — 75% to the upside.

The Bernstein analysts value Strategy using a sum-of-the-parts approach, combining its software business value and bitcoin holdings. They apply a 2x EV/sales multiple to the software business and a 55% long-term premium to its bitcoin treasury, based on estimated scenarios for bitcoin's price and the firm's debt strategy. The premium aligns with Strategy's historical average since it adopted its bitcoin play in August 2020, they noted. Bernstein expects Strategy to generate earnings per share of $207 versus prior estimates of $67.50, led by increased fair value gains on a higher bitcoin treasury.

The analysts estimate bitcoin to reach a cycle peak of around $200,000 by the end of 2025, $500,000 by the end of 2029 and $1 million by the end of 2033, with intermittent one-year bear markets.

Following Bernstein's bull case, Strategy would more than double its bitcoin stack to around 5.8% of the current 19.8 million BTC circulating supply, compared to approximately 2.5% today. That assumes Strategy can scale its bitcoin acquisition plans extensively, with easier capital markets, lower rates and a sustained bull cycle. Strategy's debt, including preferred capital, would rapidly grow to around $100 billion versus $11 billion today, with its equity proceeds reaching approximately $84 billion under that scenario, the analysts said.

However, under Bernstein's "base case," the analysts project Strategy's bitcoin stack to reach more like 4% of the circulating bitcoin supply and have a debt of around $51 billion by the end of 2033.

Alternatively, using its "bear case scenario," Strategy's bitcoin holdings would stagnate at around 2.6% of the circulating supply, with bitcoin suffering an elongated bear market after reaching a $200,000 peak this year. This would impact the firm's ability to scale its bitcoin capital market strategy and force it to liquidate its bitcoin holdings to repay the out-of-the-money convertibles and dividends on preference shares, the analysts said.

Strategy bitcoin holdings scenarios. Image: Bernstein.

On Monday, Strategy announced it had surpassed 500,000 BTC in total holdings following the purchase of another 6,911 BTC for approximately $584.1 million in cash at an average price of $84,529 per bitcoin between March 17 and March 23.

The latest acquisitions were made using proceeds from the sale of its class A common stock, MSTR, and perpetual strike preferred stock, STRK.

The company now holds a total of 506,137 BTC, worth over $44 billion, led by an approximate $23 billion capital raise since October alone. Strategy's total holdings were bought at an average price of $66,608 per bitcoin, a total cost of around $33.7 billion, including fees and expenses, according to the company's co-founder and executive chairman, Michael Saylor.

Bernstein argues Strategy has "made the most of the favorable capital market conditions for bitcoin," tapping global capital pools to buy the asset and accounting for 5% of global equity capital raised in 2024, 1% of global convertible debt in 2024 and around 15% of global preference issues year-to-date.

Strategy launched its preference shares strategy this quarter, raising $1.5 billion year-to-date. Both its STRK and STRF are non-redeemable perpetual preference shares. However, STRK has a convertible option at a strike price of $1,000 per MSTR share and an 8% dividend payable in cash or MSTR equity. STRF is non-convertible but has a 10% dividend payable in cash up to a maximum of 18% in a step-up structure in case of non-payment, Chhugani explained.

The strategy aims to obtain permanent capital with lower dividend costs and dilution than the compound annual growth rate of Strategy’s expected bitcoin, he added, arguing that with debt under 13% and no payments due until 2028, the firm's leverage remains manageable.

The STRF and STRK offerings are also in addition to Strategy's initial "21/21 plan," which targets a total capital raise of $42 billion in equity offerings and fixed-income securities for bitcoin acquisitions.

Strategy's $89 billion market cap trades at a significant premium to its bitcoin net asset value, with some investors airing reservations about the firm's premium to NAV valuation and its increasingly numerous bitcoin acquisition programs in general.

However, Strategy's bitcoin treasury is now its core business, managing liquidity and risks like any financial operation, the analysts noted. With $44 billion in bitcoin holdings and an average daily trading volume of $30 billion, the firm uses at-the-market programs to manage cash, pay dividends and acquire more bitcoin and, even with the asset's approximate 50% volatility in 2024, Strategy's dividend costs and liquidity risks are "not concerning yet," they said.

Strategy's class A common stock, MSTR, closed up 1.8% on Tuesday at $341.81 and is currently down 0.3% in pre-market trading on Wednesday. It has gained over 112% during the past year but only 13.9% year-to-date, according to The Block's Strategy Price page.

Bernstein and its affiliates have provided investment banking and advisory services to Strategy and participated in a public offering of its securities in the past year.

Disclaimer: The Block is an independent media outlet that delivers news, research, and data. As of November 2023, Foresight Ventures is a majority investor of The Block. Foresight Ventures invests in other companies in the crypto space. Crypto exchange Bitget is an anchor LP for Foresight Ventures. The Block continues to operate independently to deliver objective, impactful, and timely information about the crypto industry. Here are our current financial disclosures.

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