Currently, only a handful of companies have a market capitalization greater than $1 trillion. Except Warren Buffett Berkshire HathawayThese are all high-growth tech stocks. So the natural assumption is that the next big $1 trillion company will be yet another tech company.

But what if the next trillion-dollar company was a crypto company instead? This is the vision of MicroStrategy Inc. (MSTR -6.05%)whose value has absolutely skyrocketed due to its enormous Bitcoin (BTC 0.18%) assets. For the year, MicroStrategy was up a resounding 264% and since 2020, it has outperformed every year. S&P500 action. So is MicroStrategy really on its way to becoming the first $1 trillion crypto stock?

The path to $1 trillion

The first thing you need to know about MicroStrategy is that it holds 252,220 Bitcoins on its balance sheet, with a cumulative total value of $17 billion at current prices. This makes MicroStrategy the largest company holding Bitcoin in the world. In fact, MicroStrategy now owns over 1% of all Bitcoin in circulation today.

The business shows no signs of stopping any time soon. MicroStrategy has been going on a Bitcoin buying spree since 2020 and has been making regular Bitcoin purchases almost every month. On the contrary, MicroStrategy is now accelerating its Bitcoin purchases. The company’s new strategy consists of issuing convertible debt as a way to buy even more Bitcoin in the future.

The path to $1 trillion is actually remarkably simple: buy as much Bitcoin as possible and wait for its price to appreciate. Given that Michael Saylor, founder and executive chairman of MicroStrategy, now believes Bitcoin can reach $13 million by 2045, a $1 trillion valuation is certainly possible.

From software publisher to investment bank?

In October, Saylor presented an entirely new strategy. The plan is simply to transform MicroStrategy from an enterprise software company into an investment bank. As Saylor notes: “The end goal is to be the leading Bitcoin bank, or merchant bank, or you could call it a Bitcoin financial company. »

Image source: Getty Images.

As part of this strategic transformation, MicroStrategy will begin creating new Bitcoin capital market instruments. From a general conceptual standpoint, let’s think of MicroStrategy as a giant Wall Street investment bank doing everything a Goldman Sachs Or Morgan Stanley does, but with Bitcoin instead of dollars.

Saylor sees Bitcoin eventually becoming a $100 trillion asset class, and he wants to be at the forefront of everything happening with Bitcoin in the global financial markets. According to him, it is much more profitable if you are paid in Bitcoin rather than dollars, and much safer from a risk management perspective if you deal with assets denominated in Bitcoin rather than dollars.

How likely is this scenario?

The idea of ​​MicroStrategy becoming a billion-dollar company seems far-fetched, doesn’t it? After all, MicroStrategy is currently only a $50 billion company. And, for now, MicroStrategy is just an enterprise software company, not some sort of Bitcoin investment bank.

But here’s the thing: the math behind the $1 trillion valuation actually works if you make one key assumption. Since MicroStrategy is basically a Bitcoin proxy stock right now, all you need is for the price of Bitcoin to rise 20x. Given the company’s current valuation of $50 billion, that’s what lets you reach a valuation of $1 trillion.

There are many price predictions calling for Bitcoin to do just that. For example, Ark Invest’s Cathie Wood believes Bitcoin will easily reach a price of $1 million by 2030. In fact, in April she increased her Bitcoin price prediction to $3.8 million. Given Bitcoin’s current price of $68,725, your valuation increases 20x.

The problem with Bitcoin price predictions

However, outside of the crypto market, how many people actually believe that Bitcoin will reach a price of $1 million by 2030? For this to happen, Bitcoin must grow at a compound annual growth rate of 70% over the next five years.

As we know from previous experience, Bitcoin tends to lose more than half of its value over the years. In 2022 for example, Bitcoin fell by 65%. It is therefore a bit naive to assume that the price trajectory of Bitcoin will be a nice upward curve in the years to come.

Should you buy MicroStrategy?

The decision whether or not to buy MicroStrategy really depends on your view of the future of Bitcoin. If you think the value of Bitcoin will continue to skyrocket, MicroStrategy should too. This makes the company attractive as an investment target.

Just keep in mind that if the price of Bitcoin drops significantly, it could have negative long-term repercussions for any company as heavily leveraged by Bitcoin as MicroStrategy.