Key Points

• Strategy bought $370 million in Bitcoin in late August.

• It looks undervalued relative to its Bitcoin holdings.

• Bitcoin’s price could soar over the next few years as fresh catalysts kick in.

• 10 stocks we like better than Bitcoin ›

Over the past six years, Strategy (NASDAQ: MSTR) -- once known as MicroStrategy -- became the world's largest corporate holder of Bitcoin (CRYPTO: BTC). Its founder and executive chairman, Michael Saylor, believes Bitcoin's price could hit $21 million within the next 20 years.

That's why Bitcoin's investors closely follow Strategy's Bitcoin trades. So when Strategy sold roughly 7,000 Bitcoins (at average prices between $60,000 and $65,000) in March and August, many investors thought darker days were ahead for the world's top cryptocurrency.

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However, Strategy CEO Phong Le recently said the company was still bullish on Bitcoin, and that it only sold some of its holdings to cover its preferred dividends and reduce its debt. It also ended a 10-week buying pause by buying 4,603 Bitcoins for $370 million in late August.

Does that purchase mean Bitcoin is back?

That purchase boosted Strategy's total Bitcoin holdings to 845,050 coins, which are worth $68.5 billion as of this writing. That exceeds the company's market cap of $47.3 billion and its enterprise value of $50.3 billion -- so it's undervalued relative to its Bitcoin holdings.

However, Strategy trades at that discount because the near-term headwinds for Bitcoin could limit its gains. Elevated Treasury yields and rising interest rates could chill the crypto market and drive investors toward more conservative investments. That pressure could curb the market's enthusiasm for buying Bitcoin as a hedge against expansionary monetary policies.

While Bitcoin has risen nearly 30% over the past month, it remains 36% below its all-time high of roughly $126,000, which it reached last October. Therefore, it's premature to claim that Strategy's latest Bitcoin buy -- which doesn't even fully offset its Bitcoin sales earlier this year -- is a green flag that indicates it will head higher.

It's smart to stick with Bitcoin and Strategy

Bitcoin probably won't revisit its all-time high this year, but several catalysts could drive it much higher over the next few years. Its next halving, which halves its mining rewards every four years, will occur in 2028, making it even more difficult to mine profitably.

The soaring U.S. national debt, which recently hit $40 trillion, could drive the Fed to debase the purchasing power of the U.S. dollar with more aggressive "Fiscal Dominance" strategies -- and that devaluation will make Bitcoin and other blue chip cryptocurrencies more attractive. If you expect those tailwinds to lift Bitcoin higher, it makes sense to accumulate it before it fully recovers. It would also be smart to invest in Strategy before its valuations rise again.

Should you buy stock in Bitcoin right now?

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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.