• MicroStrategy’s stunning Bitcoin stock rally is attracting other companies looking to emulate this strategy.
• Some have already added cryptocurrencies to the corporate treasury, others are considering it.
• The coin’s reputation as a hedge against inflation and other crises is attractive as companies operate in a more volatile world.

MicroStrategy’s bet on Bitcoin has led to a wild rise in the enterprise software company’s shares – and is driving more companies to copy the strategy.

MicroStrategy’s crypto playbook has catapulted the stock 501% higher this year. Although its core business is software, accumulating a massive amount of Bitcoin has become its lodestar.

Now other companies are replenishing their stocks. Following MicroStrategy’s approach, companies issue debt to buy Bitcoin. The first adopters of the strategy include Marathon Holdings and Core Scientific – both crypto companies – as well as the Japanese company Metaplanet.

Bernstein, as of December 5th

More and more company boards are now agreeing to a simple Bitcoin purchase. Although Bitcoin holdings are not unique to MicroStrategy, companies outside of the crypto industry rarely invest. And yet a recent $1 million purchase of biopharmaceutical company Acurx Pharmaceuticals signals a turnaround.

“Speculative transactions that were previously inherent in the crypto market are becoming a thing of the past, and the ever-growing interest of institutions in creating Bitcoin-based reserves confirms this,” Gracy Chen, CEO of cryptocurrency exchange Bitget, told Business Insider.

Diversification or quick profit?

In a December note, Bernstein analysts suggested that Bitcoin will replace gold as the world’s primary “store of value” and become a standard holding in corporate finances.

Chen noted that Bitcoin has gained a reputation as a hedge against inflation and economic crises, which could be attractive to companies as the world becomes more volatile. The argument is emerging more and more – recently a think tank urged Microsoft to consider buying Bitcoin for this reason, and a similar proposal was made to Amazon shareholders.

Of course, Bitcoin’s triple-digit rally this year also inspires dreams of strong gains, as seen in MicroStrategy’s wild stock rally. The company has raised tokens by selling interest-free convertible bonds, which rewards the buyer if Bitcoin continues to rise. The success of these measures has driven up the share price.

“At a Bitcoin price of $97,400, the value of the Bitcoins created by the company this year is approximately $7.7 billion, and we think it is important to note that this value is excluding the “It has created capital expenditures and operating costs associated with Bitcoin mining.” Mark Palmer, managing director of Benchmark Company, wrote in November.

But for companies trying to replicate this, caution should be exercised here, Chen said. New entrants to the market can expect a much higher Bitcoin price than when MicroStrategy began purchasing.

Companies that buy Bitcoin using leverage also expose themselves to increased risk if Bitcoin suddenly falls: While the cryptocurrency’s price may fall, debt obligations may not.

Although the same concerns have arisen at MicroStrategy, Palmer told BI that the company has weathered previous selloffs and diversified ways to buy Bitcoin.

“If the price of Bitcoin were to fall so that MicroStrategy was trading at a discount to its (net asset value), then it would be able to create shareholder value through share buybacks, and I think that’s a big part of it.” Flexibility that the company has created,” he said.

Not for everyone

Not all shareholders want companies to jump on the crypto bandwagon.

On Wednesday, Microsoft investors voted against the think tank proposal that urged the tech titan to buy Bitcoin. Ahead of the decision, the board also recommended that shareholders reject the idea.

This was expected, Chen said, since most Microsoft shareholders likely value the software giant’s asset stability.

“The company’s investment in Bitcoin may add additional risk to investing in MSFT, while many have invested in MSFT as a predictably good business,” she told BI, later adding: “For shareholders building their own diversified portfolios and “Mixing assets like cryptocurrencies into company values.” Balance sheets can complicate a company’s valuation and distract from the core business objectives for which investors buy its shares.”