Strategy vs Bitcoin: why not simply buy Bitcoin?
For investors looking to gain exposure to Bitcoin, one of the most common questions is whether to buy Bitcoin directly or invest in Strategy (formerly known as MicroStrategy), the largest corporate holder of Bitcoin. With Strategy currently holding 538.200 BTC valued at approximately USD 50.156 bln, this question deserves careful consideration.
This article examines the key differences between these two investment approaches, analyzing their unique characteristics, advantages, and potential drawbacks to help investors make informed decisions based on their specific goals and risk tolerance.
Core differences in investment approach
Direct Bitcoin ownership vs corporate exposure
When you purchase Bitcoin directly, you’re buying a decentralized digital asset that exists on the blockchain. You have the option to self-custody your Bitcoin with private keys or store it with a custodian. In contrast, when you buy Strategy shares, you’re purchasing equity in a company that holds Bitcoin as its primary treasury reserve asset.
It’s critical to understand that owning shares of Strategy does not entitle you to the Bitcoin that the company holds. You’re investing in a corporate entity with its own capital structure, governance, and business strategy centered around Bitcoin accumulation.
Price dynamics and premium valuation
Strategy’s stock currently trades at a premium of 2.069x to its underlying Bitcoin holdings. This means investors are paying significantly more for Bitcoin exposure through Strategy than they would by purchasing Bitcoin directly.
This premium exists because the market anticipates:
- Strategy will continue acquiring more Bitcoin over time
- The company’s financial engineering will increase Bitcoin per share
- Strategy will develop Bitcoin-backed financial services in the future
During bull markets, this premium typically expands, while during bear markets, it may contract or even invert to a discount to Net Asset Value (NAV). This premium variability represents a significant risk factor – if market sentiment shifts, the premium could rapidly collapse, potentially resulting in steeper losses than Bitcoin itself during market downturns.
Leverage and performance characteristics
Strategy’s leveraged exposure to Bitcoin
One of the most compelling reasons investors choose Strategy over direct Bitcoin is the potential for amplified returns. The company uses financial leverage through convertible bonds, strategic equity issuances and preferred shares to increase its Bitcoin holdings beyond what would be possible with direct ownership.
Although Strategy’s leverage is conservative compared to many financial institutions, it still introduces some risks:
- Debt service obligations: Strategy must manage USD 9.26 bln in convertible debt with various, albeit staggared, maturity dates
- Refinancing risk: If market conditions deteriorate at debt maturity, refinancing may occur on less favorable terms
- Forced capital raising: A prolonged Bitcoin price decline could force Strategy to raise capital at unfavorable prices. This Bitcoin price is believed to be significant lower then where we are right now. And has to stay there for several years.
While Strategy’s debt structure avoids traditional margin calls, the fixed obligations remain regardless of Bitcoin price movements. However, Strategy has prudently structured its debt with staggered maturities, significantly mitigating refinancing risk. This thoughtful distribution of maturity dates ensures that the company doesn’t face a “debt wall” where multiple obligations come due simultaneously, providing flexibility to navigate through prolonged market downturns while maintaining its long-term Bitcoin accumulation strategy.
Volatility comparison
Strategy’s stock is considerably more volatile than Bitcoin. The company’s 30-day historical volatility is significantly higher than many large-cap stocks and often exceeding Bitcoin’s own volatility.
This heightened volatility occurs primarily because Strategy functions as a leveraged play on Bitcoin. Several factors contribute to this amplified volatility:
• Balance sheet leverage effect: Strategy’s capital structure creates an inherent leverage to Bitcoin price movements. The company’s balance sheet consists of Bitcoin as assets, with liabilities in the form of debt and equity. When Bitcoin’s price increases, the asset side grows while debt obligations remain fixed, causing the equity value (shareholder value) to increase by a greater percentage than Bitcoin itself.
For example, if Strategy’s balance sheet has $40 billion in Bitcoin assets and $10 billion in debt, a 10% increase in Bitcoin price would increase assets to $44 billion while debt remains at $10 billion, resulting in equity growing from $30 billion to $34 billion—a 13.3% increase, demonstrating the leverage effect.
• Premium fluctuations: The premium at which Strategy trades relative to its Bitcoin NAV (currently 2.069x) is itself volatile. This premium can expand during bullish periods and contract during bearish ones, effectively creating a second layer of volatility beyond Bitcoin’s price movements.
• Market perception: As a publicly traded company, Strategy is subject to broader equity market sentiment and flows. Traditional equity investors may react differently to market news than cryptocurrency investors, introducing additional volatility factors.
• Options market dynamics: The extensive options market built around Strategy creates hedging activity, gamma squeezes, and dealer positioning that can amplify price movements in either direction.
This heightened volatility is feature not a bug. The result is that investors who can’t handle this volatility should stay away, because of:
• More severe drawdowns during market corrections • Greater potential for short-term losses • Increased psychological pressure during market stress
While some traders may benefit from this volatility, long-term investors should carefully consider whether they can tolerate these increased fluctuations and the potential for deeper drawdowns than direct Bitcoin ownership.
Market access and investment flexibility
Accessibility considerations
For many investors, particularly institutional investors, gaining direct Bitcoin exposure presents significant challenges:
- Regulatory restrictions may prevent direct cryptocurrency purchases
- Custodial requirements can be complex and costly
- Tax considerations may favor traditional securities
- Investment mandates may restrict alternative asset classes
Strategy provides a regulated, publicly traded security that offers a leveraged Bitcoin exposure through traditional brokerage accounts. This accessibility is particularly valuable for retirement accounts, institutional investors, and those in jurisdictions with cryptocurrency restrictions.
Trading characteristics and liquidity considerations
Both Bitcoin and Strategy shares offer distinct trading characteristics that impact how investors interact with each asset class. Understanding these differences is crucial when determining which vehicle best suits your investment approach.
Bitcoin operates in a truly global, 24/7 market without trading halts or circuit breakers. This constant market access allows investors to respond immediately to news and market developments regardless of time zone or day of the week. In contrast, Strategy shares trade primarily during standard market hours (9:30 AM to 4:00 PM Eastern Time), with more limited liquidity during pre-market and after-hours sessions. This time restriction can create price gaps when significant news breaks outside regular trading hours.
From a derivatives perspective, Strategy has developed a remarkably robust options market with substantial open interest across various strike prices and expirations. This mature options ecosystem supports sophisticated hedging strategies, income generation through covered calls, and leveraged directional plays. While Bitcoin also has growing options markets on exchanges like Deribit and CME, Strategy’s options benefit from wider institutional adoption and the familiarity of traditional brokerage platforms.
Both assets support margin trading and short selling, though through different mechanisms. Traditional brokerages offer standardized margin rates for Strategy shares (typically 25-50% initial margin), making leverage easily accessible through established financial infrastructure. Bitcoin’s leverage landscape is more diverse and often more aggressive, with some crypto exchanges offering up to 100x leverage through perpetual futures contracts, though regulatory pressure has been reducing these extreme offerings.
Future potential and limitations
Strategy’s evolving business model: ambition vs reality
Strategy is positioning itself to become more than just a Bitcoin holding company. The company aims to evolve into what could be described as “the Amazon of fixed income” – creating a marketplace for Bitcoin-backed financial instruments.
While this vision is compelling, investors should critically assess its feasibility:
- Operational challenges: Strategy is working on the infrastructure and expertise to operate as a full-scale financial services company
- Regulatory hurdles: Offering financial services would require significant regulatory approvals and compliance frameworks
- Competitive landscape: Established financial institutions with substantial resources are also entering the Bitcoin space. But Strategy has first mover advantage and has Zipf’s law on its side.
- Execution risk: Transforming from a Bitcoin holding company to a financial services Bitcoin Bank represents a significant operational challenge. New crypto regulation in the US will help propel these endeavours.
Competitive landscape
While institutional Bitcoin adoption is increasing, Strategy’s first-mover advantage is likely to persist due to principles similar to Zipf’s law, which suggests the largest player in a system tends to be exponentially larger than competitors. Several factors strengthen Strategy’s dominant position:
• Exponential leadership gap: As the first major corporation to adopt Bitcoin as its primary treasury asset, Strategy has established a commanding lead that grows increasingly difficult to overcome. Per Zipf’s law distribution patterns, even if competitors emerge, Strategy is positioned to maintain approximately twice the Bitcoin holdings of any second-place corporate holder.
• Self-reinforcing market dynamics: Any corporation attempting to match Strategy’s Bitcoin holdings would drive up Bitcoin’s price, increasing Strategy’s market capitalization and enabling it to raise even more capital, further widening its lead.
• Structural advantages: Strategy’s governance structure, with its aligned leadership and Bitcoin-focused vision, creates barriers that few corporations can replicate. Most companies lack either the capital, leadership conviction, or shareholder approval necessary to pursue aggressive Bitcoin strategies.
These competitive moats suggest that rather than facing erosion of its position, Strategy is likely to maintain and potentially expand its dominance in the corporate Bitcoin space, reinforcing its premium valuation over time.
Investment considerations for different types of investors
Long-term Bitcoin believers
For investors with very long time horizons and strong conviction in Bitcoin’s future, Strategy’s leveraged approach may be appealing despite the premium valuation. The company’s financial engineering and continuous Bitcoin accumulation could potentially deliver superior long-term results compared to direct Bitcoin holdings.
• Investing in Strategy with a core position can be very interesting for long term Bitcoin believers. They can add to this position when the mNAV is low or even below 1 during bear markets. And reduce when the mNAV is high during bull markets.
However, these investors should be prepared for:
• More severe drawdowns than Bitcoin itself during bear markets
• Potential periods of underperformance relative to direct Bitcoin holdings
• Execution risk in Strategy’s long-term vision and Bitcoin accumulation strategy
Active traders and volatility specialists
For traders who thrive on volatility, Strategy offers exceptional opportunities:
- Wider trading ranges: Strategy’s greater price swings create larger profit potential
- Options opportunities: Strategy’s elevated implied volatility (currently ) enables sophisticated options strategies
- Technical patterns: The relationship between Strategy’s price and its Bitcoin NAV creates recognizable patterns for trading
However, traders should be aware of:
- Liquidity limitations during extreme market movements
- Gap risk between market sessions
- Execution challenges during periods of extreme volatility
Income-focused investors
For investors seeking income with Bitcoin exposure, Strategy’s recently introduced STRK preferred shares offer an 8% annual dividend yield with potential Bitcoin upside through the perpetual strike option. This unique instrument has no direct equivalent in the Bitcoin ecosystem.
However, this approach also comes with specific risks:
- Dividend sustainability depends on Strategy’s financial health
- Limited trading history makes performance difficult to predict
Conclusion: making the right choice for your investment goals
The decision between investing in Strategy or buying Bitcoin directly should be based on your specific investment goals, risk tolerance, and market outlook. Both approaches offer distinct advantages and disadvantages that should be carefully weighed.
Consider Strategy if you:
- Want leveraged exposure to Bitcoin’s price movements
- Value financial innovation and continuous Bitcoin accumulation
- Need a regulated security for retirement accounts or institutional mandates
- Can tolerate significantly higher volatility and deeper drawdowns
- Believe in the company’s long-term vision as a Bitcoin financial services provider
Consider direct Bitcoin if you:
- Value self-sovereignty and direct ownership
- Prefer to avoid corporate governance risks
- Are sensitive to valuation premiums
- Want to minimize counterparty risk
- Have a lower risk tolerance or longer time horizon
- Prefer more consistent correlation with Bitcoin price movements
Many sophisticated investors choose to include both in their portfolios, using direct Bitcoin holdings as a foundation while adding Strategy shares for leveraged upside potential during bull markets.
Whatever approach you choose, understanding the fundamental differences between these two investment vehicles – including both their potential benefits and significant risks – is essential for aligning your Bitcoin exposure with your overall investment strategy and objectives.