Bitcoin and MSTR

Strategy, formerly known as MicroStrategy, is the largest corporate holder of bitcoin. Strategy currently trades at a multiple to its net asset value (mNAV) of its bitcoin.

The largest corporate bitcoin holder is Strategy (NASDAQ:MSTR), formerly known as MicroStrategy. Currently, Strategy trades at a multiple to its net asset value (mNAV) of bitcoin.

Best-known for its software analytics business, Strategy’s chairman, Michael Saylor, has since pivoted the company into a bitcoin treasury company. As a result, the company trades at a premium to the net asset value of its bitcoin holdings.

There has always been debate in the markets as to whether MSTR should trade at a discount or premium to its bitcoin holdings. In the past, it traded at a premium, and even in recent years, it has continued to trade at a premium.

There are good reasons for this, such as laws in foreign countries that prevent investors from buying bitcoin directly or even spot Bitcoin ETFs. Given that most buyers of MSTR are seeking Bitcoin exposure, a natural question is how closely correlated are the prices of MSTR and BTC.

To examine this, I will pull price data on each asset daily over 2024. I will then calculate the statistical correlation over windows of different horizons.

Let’s first examine the one-year window. This means that for each day in 2024, I will calculate the statistical correlation over the last year. For example, a correlation of 0.64 on July 1, 2024, means that the statistical correlation between BTC-USD and MSTR from July 1, 2023, to July 1, 2024 is 0.64. Here is a plot of the BTC and MSTR correlation over a rolling one-year window:

BTC-USD and MSTR 1-Year Correlation

As you can see, the correlation is certainly above zero but not quite equal to one. So, there is positive but not perfect correlation. The correlation is actually quite narrow, ranging from 0.6 to 0.69, which is a tight band. There is no general trend over the year, though one might say that the correlation dipped a little bit right before the halving last May. But that dip is quite small in magnitude since it’s the difference between 0.61 and 0.64.

Now, let’s consider a shorter horizon of one quarter. We'll use the same technique, except now consider a rolling one-quarter window. So, a correlation of 0.65 on January 1, 2024, means that the statistical correlation over Q4 2023 between BTC and MSTR is 0.65. Here is a graph of that rolling one-quarter correlation for 2024:

BTC-USD and MSTR 1-Quarter Correlation

Now the variance in the correlation is larger, ranging from 0.5 to 0.75. Again, there is no real pattern here except a slight breakdown in the correlation towards the end of the year. This could be timed with MSTR’s $42 billion capital purchase plan announced in the last quarter of 2024, in which it was buying bitcoin aggressively. Much of that resulted in share dilution, which puts downward pressure on price, which will have the effect of breaking the link between BTC-USD and MSTR in the short term.

Let's now look at the rolling one-month correlation between BTC-USD and MSTR:

BTC-USD and MSTR 1-Month Correlation

Now we see an even further example of the trend. As the window shrinks, the variance in the correlation increases. Here we see the correlation ranges from 0.3 to 0.9. Again, no general trend throughout the year.

The most extreme example of this effect can be seen in the rolling one-week window over 2024 between BTC USD, which is here:

BTC-USD and MSTR 1-Week Correlation

In this very short window, the correlation can be anything, ranging from a low of almost -0.8 to a high of almost 1.0. The weekly correlation is somewhat salient because this is what people tend to comment on Twitter/X. They complain that MSTR no longer moves in sync with BTC-USD.

From the graph above, you can see that that is not true. There’s been no change in the correlation on a weekly basis over the last year. It has simply always been extremely variable. Some weeks are highly correlated and some weeks are not at all. The weekly window probably proves the most fundamental point, which is that a leveraged Bitcoin equity like MSTR is not identical to the price of the underlying asset.

While there is certainly a connection reflected in the weeks, months, and many days when the weekly, monthly, quarterly, and even annual correlation is above 0.5 and sometimes even close to 1, there are other factors