Summary For all intents and purposes, MSTR is essentially a leveraged Bitcoin ETF. With spot ETF approvals widely expected in January and asset managers bidding against each other for BTC, the biggest winners may be MSTR shareholders. April's BTC halving event is yet another catalyst that should push the price of the top cryptocurrency to new highs in the not-too-distant future. As we approach the end of 2023, investors have enjoyed one of the most eye-popping short-term rallies in recent memory. After bottoming at 4,100 on October 27th, the S&P 500 has rallied over 16% in less than 8 weeks. This two-month performance, which has come essentially without any meaningful pullback whatsoever, has essentially helped erase the 2022 decline in the broad equity market. After such a magnificent end of the year rally for stock investors, those motivated to find rebalancing ideas for the new year may want to take a look at the setup for MicroStrategy Incorporated ( MSTR ). MicroStrategy The Company As a business, MicroStrategy is a somewhat unexciting software company. Though you'll find references to "AI" and cloud computing in MicroStrategy's investor presentations, the company's revenue peaked almost a decade ago. Data by YCharts Despite the lack of an observable growth story for MicroStrategy's underlying business, the company's quarterly revenue has consistently come in between $120 million and $135 million for the last several years. The stock price has been anything but consistent, however. And these wild swings in price are entirely due to the company's corporate treasury strategy. The Macro Strategy What makes MSTR shares so compelling and the reason why the company trades at 22x sales with a roughly $9 billion market cap is the amount of Bitcoin USD ( BTC-USD ) it holds in its corporate treasury. At the end of October, MicroStrategy had 158.4k BTC. To put this in context, MicroStrategy has more BTC than every publicly traded Bitcoin mining stock combined. Q3 Earnings Presentation, Slide 16 (MicroStrategy) Using the current article submission price of $43k per coin, MicroStrategy's Bitcoin has a fair value of over $6.8 billion. Under the guidance of company founder, former CEO, and now Executive Chairman Michael Saylor, MicroStrategy acquired this Bitcoin through numerous purchases over the last three years. The company's cost basis is $29.6k, meaning at current market prices, MicroStrategy's BTC position is up by about 45%. The important detail on this BTC acquisition is that the company has financed a large portion of these purchases through a mix of long-term, low interest debt and share issuance. Q3 Earnings Presentation, Slide 22 (MicroStrategy) MicroStrategy has $2.2 billion in long-term liabilities. The senior convertible notes aren't due until December 2025. From Saylor's perspective, it's unwise to save in a fiat currency that is perpetually debased when he can instead put the company's treasury in a liquid asset that doesn't suffer from dramatic supply inflation. If you're not a proponent of cryptocurrencies, you might hate this approach. Nevertheless, it's working. As far as Saylor is concerned, he has borrowed long in a currency that historically declines in value and used that debt to acquire an asset that has historically appreciated in value. BTC per Share (MicroStrategy, Author's Graphic/Calculations) And even as the company has issued new shares, the issuance has been largely accretive as the company's BTC per share figures have remained near 2021 levels. Frankly, it's a simple strategy and one of the key reasons why Saylor may actually pull this off is because interest rates were so low in 2021. Of course, Bitcoin has to hold up its end of the bargain. But there is a very compelling setup for Bitcoin in 2024 and I suspect MicroStrategy is going to be a big winner next year. A Perfect Storm For Bitcoin? I see BTC having almost a perfect storm heading into 2024. We have the widely expected approval of a spot ETF seemingly just weeks away. The investment demand for Bitcoin in recent months has been strong, and that may be a modest assessment: Crypto Weekly Investment Flows (CoinShares) There has been just under $1.9 billion in crypto asset inflows year to date. The majority of that positive net flow has come in the last few months and $1.7 billion of the total has gone to Bitcoin specifically. This recent surge in investor flows has helped propel the price of BTC from roughly $28k in mid-October to well over $40k now: Data by YCharts At the same time, the equity market continues to be overvalued by just about any historical metric one wants to choose. And before we've really even seen an economic slowdown manifest in the official data, the Federal Reserve is already signaling a pivot to rate cuts next year. A rational hypothesis in 2023 has been that higher real interest rates are a hindrance to risk assets; particularly assets like Gold ( XAUUSD:CUR ) or Bitcoin that serve as traditional system hedges. With rates having apparently peaked, Bitcoin remains highly interesting from a system hedge standpoint. BTC Block Reward (LookIntoBitcoin) Finally, the well-telegraphed block reward halving next year will likely be a significant catalyst in pushing the price of BTC higher if demand remains consistent. When the block reward is halved, there is less sell pressure from miners and it helps propel the price to new highs. Halving 11/28/2012 7/9/2016 5/11/2020 Price At Halving $12 $663 $8,740 100 Days Later $42 $609 $11,950 1 Year Later $964 $2,550 $56,753 1 Yr % 2,267% 310% 402% Source: StormGain Each of the previous halving cycles has resulted in a new all-time high within 8 to 12 months. Given Bitcoin's relative infancy during the first halving, that event may be more of an outlier. However, if we take the average 1-year returns following the 2016 and 2020 halvings and apply that average to the current BTC price, Bitcoin could theoretically be $152k by April of 2025. That said, there are plenty of risks to consider as well. Modeling the future based on historical data may not be prudent for Bitcoin at this juncture. As the asset matures, returns will diminish over time. There are other considerations as well. Civil War Brewing? Back in early February, I detailed what was happening with the Ordinals protocol. I hypothesized that, while silly, Ordinals may have the potential to fracture the Bitcoin community in the same way the block-size civil war did back in 2016 and 2017. Bitcoin Ordinals Inscriptions (Dune Analytics/dgtl_assets) In the nearly 11 months since that article, we have indeed seen Ordinals inscriptions maintain a level of stickiness that I think those opposed to their existence were hoping wouldn't persist. In short, Ordinals "inscriptions" are essentially NFTs that use Bitcoin's block space. These inscriptions have driven nearly $200 million in transaction fees this year. Which has been wonderful for Bitcoin miners but terrible for those who want low average transaction fees on the base layer. Lightning Nodes (LookIntoBitcoin) Higher fees have been damaging to the growth of the Lightning Network because opening channels have become prohibitively expensive. To this point, BTC-denominated capacity on Lightning peaked in July and active nodes peaked in Q1 of 2022. Again fees are great for miners post-halving, but they may not be great for initial onboarding users to L2 solutions like Lightning. This is theoretically a problem for MicroStrategy specifically because the company is working on enterprise solutions built on that network. Still, MSTR's value proposition at this juncture is simply the BTC in treasury. MSTR Is Arguably Better Than A Spot ETF At this point, I think it's generally understood that buying MSTR is essentially a leveraged bet on Bitcoin. The company has low-interest debt that it used to buy BTC. And assuming that BTC appreciates in value at a rate that exceeds the expense on that debt, it's a terrific corporate treasury strategy that should yield significant returns for equity holders. But with the impending approval of a spot ETF in the United States, is there any sense in longing MSTR rather than one of these new ETFs in 2024? Q3 Earnings Presentation, Slide 26 (MicroStrategy) For all intents and purposes, MSTR has essentially served as the US market's spot ETF already. Unlike Grayscale Bitcoin Trust (BTC) ( GBTC ), MSTR has no management fee and isn't a net seller of BTC to subsidize those fees. There is actually an interesting case to be made for simply longing MSTR before the ETFs come. First, the issuers are bidding against each other to buy the BTC at the best price they can. MicroStrategy's position is already well established and benefits from the investment inflows by other asset managers pushing up the value of the company's BTC stack. Data by YCharts We can actually see already that MSTR historically outperforms not only the underlying asset, but also the US futures ProShares Bitcoin Strategy ETF ( BITO ) and the Canadian spot Purpose Bitcoin ETF ( BTCC:CA ). Data by YCharts While there have been moments in the past when MSTR sold off more aggressively than Bitcoin and each of the ETFs shown above, when BTC is rising, MSTR rises faster. I'll reiterate what I've said in previous Seeking Alpha articles where I cover Bitcoin and Bitcoin-related equities; the safest way to get exposure to Bitcoin is to simply buy and hold BTC directly off of an exchange. The asset is designed to not require custodial support. It's important to keep that in mind. MSTR introduces an additional element of risk than simply holding BTC directly and may not be right for everyone. But that risk comes with a better reward if the company's treasury strategy works as I believe it will. Closing Thoughts I'm bullish Bitcoin long term. I wouldn't be at all surprised if we see a mini-correction back below $40k before the halving. But I'd view any pullback as a short-term buying opportunity. There are a lot of advantages to buying MSTR over funds like GBTC or BITO. A final consideration is the short position in MSTR: Data by YCharts With over 2.8 million shares sold short, the squeeze potential in this name if Bitcoin continues to rise next year is significant. As I said from the beginning, MicroStrategy as a business is much less exciting than MicroStrategy's approach to treasury management. But because there is an underlying business that is largely uncorrelated to crypto, there is less risk in going long MSTR than there is in other BTC proxies like mining stocks. MicroStrategy doesn't have enormous asset depreciation and actually has a breakeven BTC price that is lower than most of the miners. MSTR is one of my favorite stocks for 2024. Editor's Note: This article was submitted as part of Seeking Alpha's Top 2024 Long/Short Pick investment competition , which runs through December 31. With cash prizes, this competition -- open to all contributors -- is one you don't want to miss. 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