Why MicroStrategy Shares Have Tanked 45% Despite Billions in Bitcoin Buys

One of the most popular Bitcoin transactions in 2024 is heading into the new year.

As of Thursday, MicroStrategy’s stock price had fallen 45% from its November peak, falling to $300 from a record price of $543 about six weeks ago.

The Tysons, Virginia-based software company went gangbusters on Bitcoin last year, buying billions of dollars worth of cryptocurrency using equity And debt. Monday the company awarded its stash of 446,400 Bitcoin, worth $43 billion, with a Bitcoin purchase of $200 million.

Since MicroStrategy’s stock price peaked, the Bitcoin buyer has bought BTC five times, but each purchase has gotten smaller. For example, following the $5.4 billion purchase of Bitcoin on November 25, Monday’s purchase represented the lightest allocation since August. That turned out not to be enough to stop the long-term decline in the share price.

MicroStrategy has cemented its status as the world’s largest corporate holder of Bitcoin – adopting ownership as a new way to shore up its balance sheet in 2020 – but the company has also recently attracted attention on Wall Street as a potentially risky Bitcoin asset. bet.

By issuing $7.3 billion in convertible notes, a form of debt that can later be converted into stock, the company has been able to buy more Bitcoin than it otherwise would have. At the same time, the company’s valuation has soared past that of its $43 billion Bitcoin holdings, with a current market cap of $73.2 billion.

Investors have paid a premium for Bitcoin exposure when it comes to MicroStrategy’s shares, which are currently trading at 1.6x higher than their Bitcoin shares, according to figures. MSTR tracker. While investors can get pure Bitcoin exposure through products like spot ETFs or by simply buying the asset itself, that premium was 3.4x in November.

MicroStrategy’s share price is up 334% in the past year, surpassing Bitcoin’s 116% gain over the same period. That has led Bernstein analysts to say that MicroStrategy “building a business” for his premium, in addition to a proven ability to increase his Bitcoin holdings per share.

However, with an implied price of $200,000 per Bitcoin for MicroStrategy stock, it appears that “equity investors are no longer willing to back MicroStrategy with an inflated” stock price relative to its Bitcoin holdings, 10X Research wrote in a Thursday note.

“The shift underscores a growing rationality among investors who previously embraced MicroStrategy’s unofficial narrative as ‘leveraging Bitcoin,’” 10X Research said.

Leveraged investment products exist, allowing traders to gain greater market exposure to an asset or benchmark. But when MicroStrategy’s valuation skyrocketed last year, the company’s value relative to its Bitcoin holdings was labeled by some as unsustainable.

In November, influential investment firm Citron Research revealed a short position in MicroStrategy while maintaining a long position in Bitcoin. Citron, which previously backed MicroStrategy, said the company “completely detached” from Bitcoin Fundamentals.

Despite rumors about MicroStrategy’s bounty, the company was added to the Nasdaq-100 last month, finding a new place within the stock market index that tracks top technology companies. Analysts have said the move could result in… billions of dollars that flow into MicroStrategy stock.

MicroStrategy’s inclusion in the index was praised by Bitcoin enthusiasts, who saw the asset’s price peak for $108,000 a few days later. Since then, the price of Bitcoin has fallen by 10%, while MicroStrategy’s share price has fallen much further.

Edited by Andrew Hayward