The stock of the company now known as Strategy (MSTR) — formerly MicroStrategy — spent virtually all of 2024 soaring.

The reason: It’s a way to play Bitcoin. The company bought bitcoins, bought more, issued stock and debt to buy even more, and in 2025 issued preferred stock to buy still more.

(Note: This article was published in March 2024, and some figures and statements may have changed since.)

The stock of the company now known as Strategy (MSTR) — formerly MicroStrategy— (NASDAQ:MSTR) spent virtually all of 2024 soaring. It went from around $150 in early January to more than $400 by mid-December, a return of about 167 percent. For reference, the S&P 500 Index (GPMVN) rose around 14 percent over the same period.

The company is best known for its massive purchases of Bitcoin (BTC). In 2020, as the coronavirus pandemic began, the company had a net asset value of $36.66 billion, but its market capitalization was $76.4 billion — a premium of $39.7 billion for investors to hold the company’s stock rather than invest in assets that would generate a return.

By the fourth quarter of 2024, however, the company’s market cap had nearly doubled to $71.2 billion, while its net asset value had risen to $43.72 billion after adjusting for the fair market value of the company’s Bitcoin holdings. That’s an overvaluation of about 63 percent. In other words, investors are paying about 63 percent more to own Bitcoin through Strategy stock than they would be to buy the cryptocurrency or an exchange-traded fund of it directly.

The move makes little sense. If investors want to own Bitcoin, they should buy Bitcoin, not a company that is issuing stock and convertible debt to buy more of the cryptocurrency. But if investors want to own a company with a strong business model and a history of generating returns, then they should buy a company that is focused on its core operations, not one that is spending the vast majority of its time and resources on a single asset class.

Here are three of the biggest risks of buying this Bitcoin proxy.

1. Strategy’s market cap dwarfs its net asset value

Perhaps the most obvious and significant risk to investors is that the total value of the company’s stock, its market cap, is worth vastly more than the net asset value of the company.

The net asset value of Strategy was $43.72 billion as of year-end 2024, after adjusting for the fair market value of the company’s Bitcoin holdings. That compares to a total market capitalization of $71.2 billion at the close of the year — an overvaluation of around 63 percent. To put it another way, investors are paying about 63 percent more to own Bitcoin through Strategy stock than buying the cryptocurrency or a Bitcoin ETF directly. The move makes little sense.

Strategy management are well aware of the disconnect and are taking advantage in a way that benefits shareholders. The company actually has an authorization to sell the stock and is using it to buy more bitcoins. The company issued $15.1 billion in stock in the fourth quarter and a further $2.4 billion through Feb. 2, 2025. It can raise a further $4.3 billion through stock sales.

These proceeds are then plowed back into purchases of Bitcoin. In the fourth quarter alone, the company bought $20.5 billion in bitcoins and purchased more in the first quarter of 2025.

In effect, Strategy is selling its overpriced stock and buying relatively underpriced bitcoins. It makes sense to take advantage of shareholders who are willing to overvalue the stock and then to purchase more of what they’re overvaluing, the bitcoins. And the practice should continue, since the company is increasing the total number of shares it can issue.

But if Strategy can’t continue to sell overpriced stock to continue its Bitcoin buying binge, what happens to the stock then? If something can’t continue, it eventually won’t.

2. Strategy is strapped with debt and its businesses lose money

Strategy has issued convertible debt to bootstrap its way to a high stock price. With convertible bonds, a company typically receives a lower-than-average interest rate and promises the bond buyer to convert the bonds to stock later, often at a more favorable price. So “converts” can be favorable for companies that don’t have strong cash flow and that can pay with stock instead.

Strategy has six series of convertible debt outstanding at interest rates ranging from 0 percent to 2.25 percent. It also recently issued convertible preferred stock, which acts much like a bond, but it had to do so at a significant discount, even though the preferreds pay a high 8 percent coupon. The bonds and the preferreds mean that the company has to pay interest regularly.

But Strategy’s underlying business is weak. In 2024, for example, it generated an operating loss of more than $6