Every investor on the planet would like to have some exposure to the possibility of Bitcoin continuing to go way up in price like it has over the past 15 years.
Who wouldn’t want to own an asset that could double or triple… or even go up 150 times from current levels (as some have predicted)?
On the other hand, not everyone wants to deal with the extremely high volatility of Bitcoin, which keeps many investors on the sidelines.
Since the start of the year, Bitcoin has declined from an all-time high over $109,000 to a year-to-date low just above $76,000—a 30% swing. As we write, Bitcoin now trades around $82,000.
Sharp moves like this are a lot for many investors to handle—even if they perceive a long-term benefit.
But what if there were a way to get exposure to long-term upside scenarios in Bitcoin without having to endure this extreme volatility?
And what if one could get decent returns out of such an investment even if Bitcoin does not perform exceptionally well?
Realizing that extreme volatility is not for everyone, Strategy (the Bitcoin Treasury Company formerly known as MicroStrategy) has created a solution that many investors are likely to find quite appealing.
Issued for the first time in February, this security is referred to by the company as Strike and trades under the ticker STRK. It can be purchased in brokerage accounts just like you would purchase shares of any other stock.
With several unique features, STRK is attracting a lot of interest from various corners of the investment world.
Although STRK can be purchased like a share of common stock, it is actually what is known as preferred stock. We offer a fuller explanation below, but preferred stock is basically a form of stock that in many ways resembles a bond.
STRK, like all preferred stock, offers a fixed dividend payout, similar to how bonds offer fixed coupon payments.
But STRK is also convertible into common stock, specifically the shares of Strategy, which still trade under the ticker MSTR.
Because of the way it is structured, an investor would only choose to convert his or her shares of STRK into MSTR if shares of MSTR went way up from current levels.
But this ability to convert is perpetual, meaning it never expires. This means long-term investors have plenty of time for MSTR shares to appreciate to the point where the conversion feature starts to become highly valuable.
So, for starters, what investors get in STRK is a security that, at the moment, offers a dividend yield above 9% with quarterly payments (which is nothing to scoff at).
And if a surge in the price of Bitcoin translates into a surge in the price of MSTR, they also get the option to convert their STRK shares into shares of MSTR at a price that could be well below its trading price.
No free lunch, of course
While the high dividend yield and conversion option are clearly appealing, there are naturally going to be certain risks that investors in STRK need to understand.
The biggest risk, in our view, is a severe and sustained decline in Bitcoin, which could damage Strategy’s ability to make dividend payments.
We explain and address these risks in detail below.
But for investors who are inclined to believe the long-term trajectory of Bitcoin is generally up—and believe Strategy will successfully avoid getting into a situation of severe financial distress—then an investment in STRK might make a lot of sense.
In our view, the risk/reward profile of STRK is compelling for investors with a long time horizon who share our confidence in Bitcoin as well as the ability of Strategy to manage its balance sheet responsibly over time.
