Benchmark defends Strategy's large-scale stock purchases of Bitcoin: could become the next dark horse in the S&P 500

The Bitcoin asset management company Strategy (MSTR) has recently faced market skepticism for relaxing its self-imposed "common stock issuance restrictions" to accelerate its accumulation of Bitcoin. However, investment bank Benchmark released a latest report, supporting that this move is a "reasonable route correction" and believes that MSTR is not only still one of the best targets for capturing the upside potential of Bitcoin, but also has the potential to become a new constituent stock of the S&P 500 index.

MSTR adds 4,048 Bitcoins to position

On September 1, MSTR announced the purchase of an additional 4,048 Bitcoins, bringing its total holdings to 636,505 BTC. The funds for this purchase came from the issuance and sale of Class A common stock (MSTR) and perpetual preferred stock (STRK, STRF, STRD).

This action took place against the backdrop of the company's stock price having fallen over 20% in recent weeks, but it has seen some recovery in the last few trading days.

Benchmark: The market misunderstood the causal relationship

Benchmark Chief Analyst Mark Palmer pointed out in a report that the recent criticism from retail investors regarding MSTR management's "poor capital market operations" actually reverses the causal relationship.

He explained that the real reason for the pressure on MSTR's stock price is the shrinking premium of Bitcoin holdings, coupled with macro and cryptocurrency market volatility, leading to a compression of valuations.

In July of this year, the company promised to only use its stock to purchase Bitcoin when the price-to-earnings ratio (mNAV multiple) was above 2.5 times. However, the multiple subsequently fell to 1.59 times, and the market expected a slowdown in the purchasing speed of coins, which further compressed the premium.

Relaxing restrictions is 'flexibility returning'

Palmer believes that removing the 2.5 times threshold limit allows MSTR to continuously increase its Bitcoin holdings under different market conditions, restoring the flexibility of capital operations, consistent with the company's past strategy.

He emphasized: "MSTR is still the cleanest and most liquid way to gain exposure to the Bitcoin pump potential, without having to take on the execution risks of mining."

S&P 500 Potential Stocks?

Benchmark also pointed out that MSTR has become a popular candidate for the quarterly adjustment of the S&P 500 index this Friday.

Although the company meets all inclusion criteria, its Bitcoin holding characteristics may cause the index committee to hesitate about adding more crypto-related components in the current environment.

Palmer mentioned that Block has successfully been selected, and MSTR also meets the positive income requirements, but these earnings mainly come from the unrealized gains from Bitcoin's market value fluctuations, rather than traditional operating profits.

Conclusion

Benchmark maintains a "buy" rating on MSTR with a target price of $705. As of the latest trading day, MSTR has risen nearly 3%, trading at $341.

For investors, MSTR is not only a high-leverage betting tool on the rise of Bitcoin prices, but it may also see additional capital inflows due to its entry into the S&P 500. In the coming weeks, the market will closely watch the interaction between its capital strategy and the trends in the Bitcoin market.