TD Cowen: MicroStrategy holds $2.2 billion in cash to prepare for the crypto winter, which can last for 32 months.

MicroStrategy (MSTR) cashed out approximately $748 million by selling common stock last week, causing its dollar reserves to surge to $2.19 billion, which has attracted significant market attention. Investment bank TD Cowen's TD Securities division pointed out that this cash is enough to cover about 32 months of interest and dividends for the company, indicating that even in the face of a “long-term cryptocurrency winter,” MicroStrategy's continued viability is not a concern.

TD Cowen Core Argument: Liquidity is the Real Moat

(Source: Michael Saylor)

TD Securities analyst Lance Vitanza and his team clearly stated in their report that MicroStrategy's move “highlights the company's robust balance sheet” and emphasized that enhancing liquidity during periods of market pressure is always a prudent measure. The logic behind this evaluation is in stark contrast to the mainstream market view, as most investors panic due to MicroStrategy's stock price plummeting over 43% so far this year, while TD Cowen believes the company is best preparing for the next cycle.

The analyst team pointed out that MicroStrategy has sold more than 22 million shares in the past four weeks, roughly in line with the average daily trading volume, but has not disrupted market liquidity. This operation method demonstrates the management's precise control over the pace of stock issuance, avoiding a stock price collapse caused by large-scale sell-offs. More importantly, this ability to continuously enter the capital market itself is a competitive advantage, and TD Cowen believes that “concerns about the feasibility of MicroStrategy's balance sheet have been exaggerated.”

The cash reserve of 2.19 billion USD is not only a digital game but also a symbol of strategic transformation. MicroStrategy has shifted from being an aggressive Bitcoin buyer to a defensive capital allocator, a transition that is highly forward-looking in the current market environment. When Bitcoin prices continue to languish, companies with ample cash can calmly choose the best timing to buy the dip, rather than being forced to chase highs or cut losses at lows. TD Cowen has given such an optimistic evaluation precisely because it recognizes this strategic flexibility.

Valuation logic behind the $500 target price

Despite MicroStrategy's current stock price being around $165, TD Cowen maintains a target price of $500, which implies nearly 200% potential upside. The analyst admits, “Given our target price has nearly 200% potential upside, we realize that this target price may seem 'untimely'.” However, they emphasize that considering the intrinsic relationship between MicroStrategy's strategy and Bitcoin price trends, as well as the significant volatility in both Bitcoin prices and MicroStrategy's Bitcoin premium itself, this target price is a reasonable expected outcome after a year.

TD Cowen's valuation model is based on the estimation of Bitcoin's intrinsic value. Analysts predict that the intrinsic value of Bitcoin will be approximately $380 per share in one year, and about $515 per share in two years. This valuation method views MicroStrategy as a “leveraged Bitcoin bull,” with its stock price expected to reflect the asset appreciation brought by future increases in Bitcoin prices. According to data from The Block, MicroStrategy currently holds 671,268 coins, valued at over $5.9 billion, making it the largest Bitcoin treasury company in the world.

Furthermore, TD Cowen predicts that by the end of fiscal year 2027, MicroStrategy's Bitcoin holdings could reach approximately 835,000 coins. This means that even during the current phase of pausing purchases, analysts still expect the company to continue increasing its holdings in the future. This forecast is based on two assumptions: first, that the price of Bitcoin will rebound in the coming years, providing MicroStrategy with the motivation to increase its holdings; second, that the financial flexibility gained through cash reserves will allow the company to restart its purchasing plan at the optimal time.

Three Pillars of TD Cowen's Optimistic Forecast

sufficient cash buffer

$2.19 billion in reserves can cover approximately 32 months of Interest and dividend payments, far exceeding the industry standard of 12 months, ensuring that even if Bitcoin prices remain sluggish, the company will not face the risk of debt default.

Capital Market Access Capability

In the past four weeks, 22 million shares were sold without disrupting the market, proving that MicroStrategy can sustainably raise funds through stock issuance. This ability has become a rare advantage during the crypto winter, allowing the company to calmly position itself while others are in panic.

Regulatory Environment Improvement Expectations

The Federal Reserve is seeking public opinion on “payment accounts,” which may allow cryptocurrency companies limited access to payment systems. TD Cowen believes that the possibility of a “spring for Crypto Assets” is at least not less than the expected winter scenario.

From Aggressive to Defensive: The Strategic Evolution of MicroStrategy

MicroStrategy first revealed details of its US dollar reserves on December 1, stating that it has raised $1.44 billion to establish a liquid cash buffer for paying preferred stock dividends and interest on outstanding debt. Just a few weeks later, this figure grew to $2.19 billion, an increase of over 50%. This rapid accumulation of cash stands in stark contrast to the aggressive strategy of “continuously buying regardless of Bitcoin prices” over the past four years.

This strategic transformation is not a sign of weakness, but a rational choice to adapt to the market environment. When Bitcoin fell back to the current level of around 89,000 after reaching 108,000 in November, MicroStrategy chose to pause buying and hoard cash, indicating that management believes the current price is not an ideal buying point. Conversely, if Bitcoin further dips to 70,000 or 60,000, MicroStrategy, with 2.2 billion in cash, will be able to make significant purchases at the bottom, expanding its position at a lower cost.

TD Cowen particularly emphasized that this financial flexibility allows MicroStrategy to “withstand challenging market environments.” Throughout the history of the crypto market, most companies have been forced to sell assets during bear markets due to cash flow exhaustion, but MicroStrategy's cash reserves ensure that it will never become a forced seller. This asymmetric advantage is immensely valuable in long-term competition, as market bottoms are often accompanied by liquidity crises, and only players with cash can acquire quality assets at discounted prices.

The Federal Reserve's policy shift may become a catalyst

One easily overlooked highlight in the TD Cowen report is the commentary on the regulatory environment. Analysts point out that the Federal Reserve is seeking public input on a proposed “payment account” (sometimes referred to as a “streamlined master account”), which may allow certain qualifying institutions (potentially including some crypto-related companies) limited access to the Federal Reserve's payment system.

If this policy is implemented, it will be a milestone event for the encryption industry. In the past, encryption companies were excluded from traditional financial infrastructure, resulting in high costs and low efficiency for capital transfers. If the Federal Reserve allows encryption companies to directly access payment systems, it will not only reduce operational costs but, more importantly, gain recognition of regulatory legitimacy. TD Cowen therefore believes that “the possibility of a spring for Crypto Assets is at least no less than expected,” and this optimistic sentiment adds additional support to MicroStrategy's long-term prospects.

For MicroStrategy, an improved regulatory environment means that its Bitcoin treasury model may gain wider recognition and even be imitated by traditional financial institutions. If more companies follow MicroStrategy in incorporating Bitcoin into their asset allocations, the overall increase in demand will drive up BTC prices, thereby validating TD Cowen's target price of $500.

Investment Opportunities in Market Divergence

Despite TD Cowen's optimistic rating, MicroStrategy's stock price has still plummeted over 43% year-to-date, indicating a significant divide in market sentiment regarding this narrative. Bears argue that MicroStrategy is essentially a leveraged Bitcoin bull, and if BTC continues to languish, the company's value will inevitably be harmed. Additionally, the dilution effect caused by the large issuance of shares also worries investors.

However, TD Cowen's perspective offers another viewpoint: the current stock price collapse is due to the market being overly pessimistic, ignoring the improvements in MicroStrategy's balance sheet and the enhancement of strategic flexibility. In this divergence, rational investors should ask the question: Is MicroStrategy really facing a survival crisis, or is it merely experiencing a cyclical adjustment? TD Cowen's answer is the latter, with the $2.2 billion cash reserve being the strongest evidence.