The US development firm, MicroStrategy Incorporated, has become the world’s largest institutional holder of Bitcoin following a record $4.6 billion purchase. The cryptocurrency surged last week after SEC filings revealed MicroStrategy had bought 51,780 Bitcoins over six days in November. It comes after a series of large-scale Bitcoin purchases by the company in recent months, which it says helps it to leverage buying power.

The strategy appears to be paying off, with MSTR stock up more than 350 per cent YTD, as of November 22. Being so heavily invested in Bitcoin, the firm has benefitted enormously from the digital currency’s precipitous rise – up more than 50 per cent in the last month alone. One financial analyst described the purchases as ‘the right strategy at the right time.’ Speaking to the FT, Mark Palmer of the Benchmark Company said:

“I think it reflects not only the market’s embrace of the company’s approach but also the mood of the moment: that MicroStrategy has really the right strategy at the right time given the anticipated support of bitcoin and crypto by the Trump administration, particularly as it pertains to a more supportive regulatory environment,”

So, while the strategy may be paying off for MSTR, some analysts think the acquisitions could portend trouble ahead for the stock market.

Warning over ‘looming market crash’

Some analysts have claimed that large-scale investments in Bitcoin could signal a lack of investor confidence in the stock market. Others say these enormous purchases could lend themselves toward creating a bubble. John Roque, 22V’s technical analyst drew a parallel between MSTR and the dot-com boom:

“I was there as NASDAQ was racing into its early 2000 peak, and MSTR is emblematic of the type of advance that occurred regularly for many stocks during that period

“I am not drawing a parallel between NASDAQ 2000 and this era…I am merely saying that the price advance for MSTR qualifies as a price bubble for it.”

Those concerns were echoed by the founder of IWR, Scott Bennett, who urged investors to take a cautious approach. Speaking on the Investor’s Business Daily Podcast he said:

“What I don’t want for investors is to buy and have no self-discipline, because that’s where you get absolutely squashed at some point…

“At some point, this is going to have a hard landing…The question is, what’s your plan.”

Is there an opportunity in Bitcoin right now?

Bitcoin is riding high, and many analysts expect it will continue to do well as a result of the incoming Trump administration. The President-Elect has made several pro-crypto pledges which investors expect to have a positive impact on the price of Bitcoin. The currency is up around 30 per cent since the election, as are a number of associated businesses, such as crypto exchanges. MicroStrategy is one of many companies which are benefitting from this latest Bitcoin rally. However, investors might do well to heed caution and refrain from going ‘all in.’ While Bitcoin’s prospects look good, it’s important to invest for the long term and to maintain a diverse portfolio, to spread your risk. Always seek professional financial advice before making any investment decision.