MicroStrategy (MSTR) has a unique business model based on acquiring and owning Bitcoin (BTC), which accounts for the majority of the software company's valuation, investment banking firm Benchmark said in a Tuesday research report providing coverage of the stock recorded.
Benchmark has a Buy rating on the stock with a $990 price target. MicroStrategy rose about 8% to $860.75 in early trading on Tuesday.
“We believe that the increase in demand for Bitcoin resulting from the launch of multiple spot Bitcoin ETFs, combined with the reduced pace of supply due to the halving, has the potential to drive the price of the cryptocurrency significantly higher over the next few years “,” wrote analyst Mark Palmer. When the Bitcoin halving occurs, miners' rewards will be cut by 50%, reducing the supply of tokens in the market.
The company's $125,000 Bitcoin price assumption for valuing MicroStrategy is based on the last 10 years' compound annual growth rate (CAGR) of the cryptocurrency's price, applied to a two-year forward period.
MicroStrategy's software business acts as “ballast for this valuation” and generates cash flow that can be used to purchase additional Bitcoins, the report continued.
Benchmark notes that the first three Bitcoin halvings were associated with an uptrend in the price of the cryptocurrency.
MicroStrategy is the largest corporate owner of Bitcoin. In recent weeks, it purchased an additional 3,000 tokens for $155 million, bringing its total holdings to 193,000 coins, the company said in an SEC filing yesterday.
Read more: Michael Saylor's MicroStrategy Bought Another 3,000 BTC and Now Holds a Value of $10 Billion
