MicroStrategy Is a Timely Play on Bitcoin Halving; Initiate at Buy: Benchmark

MicroStrategy (MSTR) has a unique business model based on the acquisition and holding of bitcoin (BTC), which represents the majority of the software company’s valuation, investment banking firm Benchmark said in a Tuesday research report initiating coverage of the stock.

Benchmark has a buy rating on the shares with a $990 price target. MicroStrategy added about 8% to $860.75 in early trading on Tuesday.

“We believe the boost in demand for bitcoin resulting from the launch of multiple spot bitcoin ETFs, combined with the reduced pace of supply resulting from the halving, has the potential to drive the price of the cryptocurrency meaningfully higher during the next couple of years,” analyst Mark Palmer wrote. When bitcoin halving occurs, miners' rewards are cut by 50%, reducing supply of tokens to the market.

The firm’s bitcoin price assumption of $125,000 used to value MicroStrategy is based on the compound annual growth rate (CAGR) of the cryptocurrency’s price over the last 10 years applied over a two-year forward period.

MicroStrategy’s software business acts as “ballast to that valuation” and generates cash flow that can be used to buy additional bitcoin, the report added.

Benchmark notes that the first three bitcoin halvings were associated with bull runs in the price of the cryptocurrency.

MicroStrategy is the largest corporate owner of bitcoin. In the past couple of weeks it bought an additional 3,000 tokens for $155 million, bringing its total holdings up to 193,000 coins, the firm said in a SEC filing yesterday.

Read more: Michael Saylor’s MicroStrategy Purchased an Additional 3K BTC, Now Holds $10B Worth