Bitcoin (BTC-USD) surged past $57,000 intraday on Tuesday, the first time the digital asset has sat at that milestone in over two years. The cryptocurrency has rallied almost 30% year-to-date in 2024 alone, ahead of the bitcoin halving event in April.
When asked what companies are best positioned to leverage the crypto asset, Palmer explains: "I have to come back to MicroStrategy (MSTR) simply because if you look at the correlation coefficient between bitcoin and MicroStrategy, it's 0.94. So if someone can go out and buy bitcoin in the market, fine, but many institutional investors in particular do not have the ability to do that under their mandates and so this offers an attractive alternative and again, on a levered basis. There's also a robust option stack around MicroStrategy and the stock itself is marginable, so you can't hedge effectively with a spot bitcoin ETF, you can hedge very effectively with the capital structure around MicroStrategy."
Related Videos
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
BRAD SMITH: Bitcoin-- we'll start there topping-- $57,000 earlier this morning for the first time in over two years. We're seeing it trade now around $56,811.24 to be exact. The rally largely attributed to demand around spot Bitcoin ETFs plus investments from MicroStrategy, which scooped up over $155 million worth of Bitcoin in the past couple of weeks.
For more on the rally, we turn to Mark Palmer, benchmark managing director and senior research analyst. Mark, always a great pleasure to get some of your insights and analysis here. Particularly, you're focused in on MicroStrategy. But if we pair together, what we're seeing-- because a lot of the MicroStrategy story now is hinging on Bitcoin as well. What does Bitcoin need to get up to in order for it to hit some of your targets that you've got set forth for MicroStrategy?
MARK PALMER: Yes. Good to talk to you. Our assumption is that the price of Bitcoin is going to achieve $125,000 by the end of 2025, which, as you can see the stock, the price of Bitcoin had been around $57,000. So that's a big move.
But why do we have confidence that that's going to happen, and it's going to accrue to the benefit of MicroStrategy? Really, it comes down to supply and demand. As you mentioned, there's been significant demand for Bitcoin since the nine spot Bitcoin ETFs have launched following the SEC's approval of that structure in January.
That's been amazing in terms of the volumes that we're seeing across the board. At the same time, we are now approaching a milestone in the Bitcoin ecosystem, the so-called halving, which is slated to occur at the end of April.
Every four years or so, you see the mining rewards that are paid to Bitcoin miners cut in half. This has happened three times in the history of Bitcoin in 2012, 2016, and 2020. And in each case, we saw a rally moving into the halving, and then a bigger rally for the next year plus afterward.
This is, again, simply about new supply being curtailed. It's really crucial to the mechanism behind Bitcoin, because that controls inflation, which is where Bitcoin is seen as an alternative to the US dollar and other Inflationary currencies.
SEANA SMITH: Mark, then you also have the anticipated approval, potentially, here. The ether applications, which could be another catalyst for crypto. All in all, when we talk about this rally, whether or not it has staying power, what do you think that upside then looks like for some of these cryptocurrencies?
MARK PALMER: Well, again, we focus primarily on Bitcoin in this context. But we're seeing a setup such as we have never seen before. Now, I say never seen. The history of Bitcoin only goes back to 2008, 2009. But still, we've seen some massive rallies and massive pullbacks.
This go round-- we have the confluence of not only the halving, but one of the biggest tailwinds we've seen for this space, the wholesale adoption of the cryptocurrency by institutions. And, of course, Bitcoin is that odd asset class insofar, as far as retail, really led the demand for it for the first decade plus of its existence. It's really now that there's the opportunity for institutional investors to come in.
MicroStrategy is one way to play that for institutional investors. Frankly, we see some benefits versus spot Bitcoin ETFs in that regard, simply because MicroStrategy is still throwing off free cash flow from its software business using that to buy more Bitcoin.
It's issued $2.2 billion in debt use. The proceeds from that to issue Bitcoin. So it's a unique vehicle in that regard that it's not simply a passive investment. It's a company that is actively positioning to make an intelligent leveraged bet on Bitcoin.
BRAD SMITH: Mark, what crypto touching companies, perhaps, or even crypto platform company from your analysis across this industry is best positioned to really capitalize on any furthering of this rally within crypto?
MARK PALMER: Well, again, I have to come back to MicroStrategy simply because if you look at the correlation coefficient-- of the correlation between Bitcoin and MicroStrategy is 0.94.
So if someone can go out and buy Bitcoin in the market, fine. But many institutional investors, in particular, do not have the ability to do that under their mandates. And so this offers an attractive alternative, and, again, on a levered basis.
There's also a robust option stack around MicroStrategy. And the stock itself is marginable. So you can't hedge effectively with a spot Bitcoin ETF. You can hedge very effectively with the capital structure around MicroStrategy.
SEANA SMITH: All right. Mark Palmer, thanks so much for joining us here this morning. We appreciate your time again. Bitcoin just above $57,000.