We often talk about long-term investing, and the S&P 500 has certainly been a remarkable performer over the last few decades, delivering an average annual return of 7-8%.
However, in recent times, a fascinating trend has emerged in the market, particularly around Bitcoin. While Bitcoin itself has seen substantial growth, certain publicly traded companies, sometimes called "Bitcoin treasury" companies, have experienced even more significant movements in their stock prices. These are companies that have adopted a strategy of holding substantial amounts of Bitcoin on their balance sheets, often making it a core part of their corporate treasury strategy.
Let's look at some examples to illustrate this. For instance, in an 18-month period where Bitcoin itself appreciated by around 300% (meaning a $100 investment could grow to $400), a well-known company like MicroStrategy (MSTR) saw its stock climb by approximately 1,200%—a twelvefold increase. This suggests that for some investors, these companies offer a leveraged exposure to Bitcoin's price movements.
More recently, other companies have followed a similar path. Metaplanet, a firm based in Japan, reportedly saw its stock rise by over 550% in just a three-month period. Similarly, a Canadian company called Matador experienced a gain of roughly 400% in the same timeframe. There are even smaller, lesser-known companies, like a UK-based firm called Smarter Web Company, that have seen extremely high percentage gains over very short periods, such as 5,000% in just one month. It should be noted that a lot of these stocks fell just as quickly as they grew as their stock prices can be very volatile.
Understanding the Approach
These "Bitcoin treasury" companies often structure their operations to accumulate Bitcoin using various financing methods, including issuing debt or selling equity. This allows them to increase their Bitcoin holdings beyond what their core business operations might generate. The premise for many of them is that Bitcoin serves not just as a speculative asset, but as a potential hedge against inflation and a way to attract investors seeking exposure to the digital asset space.
It's important to understand that the performance of these companies' stocks is often highly correlated with, and sometimes amplifies, the volatility of Bitcoin itself. They can offer a way to participate in the growth of the digital asset space through a traditional stock market vehicle.
What This Means
When we see such dramatic figures, it's natural to feel intrigued, or perhaps even a touch of "fear of missing out." However, as always, it's crucial to maintain a grounded perspective. These kinds of outsized gains often come with equally outsized risks. The valuations of these companies can sometimes trade at a significant premium to the actual value of the Bitcoin they hold, reflecting market enthusiasm and the leveraged nature of their strategy.
This trend highlights the innovative ways companies are approaching corporate treasuries and seeking to provide value in a changing economic landscape. While the S&P 500 represents a broad market exposure, these specialized companies offer a different type of investment profile.
Understanding these new avenues in the market is key to being an informed investor but, as always, balancing potential opportunities with a clear understanding of the risks involved is paramount.
Bitcoin is a type of cryptocurrency. Cryptocurrency-related products carry a substantial level of risk and are not suitable for all investors. Investments in cryptocurrencies are relatively new, highly speculative, and may be subject to extreme price volatility, illiquidity, and increased risk of loss, including your entire investment in the fund. Spot markets on which cryptocurrencies trade are relatively new and largely unregulated, and therefore, may be more exposed to fraud and security breaches than established, regulated exchanges for other financial assets or instruments. Some cryptocurrency-related products use futures contracts to attempt to duplicate the performance of an investment in cryptocurrency, which may result in unpredictable pricing, higher transaction costs, and performance that fails to track the price of the reference cryptocurrency as intended.
Please note that virtual currency is a digital representation of value that functions as a medium of exchange, a unit of account, or a store of value, but it does not have legal tender status. Virtual currencies are sometimes exchanged for U.S. dollars or other currencies around the world, but they are not currently backed nor supported by any government or central bank. Their value is completely derived by market forces of supply and demand, and they are more volatile than traditional fiat currencies. Profits and losses related to this volatility are amplified in margined futures contracts.
Digital currencies are highly volatile and not backed by any central bank or government. Digital currencies lack many of the regulations and consumer protections that legal-tender currencies and regulated securities have. Due to the high level of risk, investors should view cryptocurrency as a purely speculative instrument.