One of the most popular Bitcoin trades in 2024 is experiencing a decline as the New Year begins. MicroStrategy, based in Tysons, Virginia, has seen its share price drop by 45% since its peak in November, falling from $543 to $300 in just six weeks.
Last year, the software firm went all in on Bitcoin, purchasing billions of dollars’ worth of the cryptocurrency using equity and debt. On Monday, the company further increased its Bitcoin holdings by purchasing $200 million worth of the digital asset, bringing its total stash to 446,400 Bitcoin, equivalent to $43 billion.
Despite making multiple Bitcoin purchases since its share price peaked, each subsequent purchase has been smaller. Monday’s purchase represented the lowest allocation since August, but it was not enough to halt the stock’s downward spiral.
MicroStrategy has solidified its position as the world’s largest corporate holder of Bitcoin, using the digital asset to strengthen its balance sheet in 2020. However, the company has also attracted attention on Wall Street for its potentially risky leveraged Bitcoin bet. By issuing $7.3 billion worth of convertible notes, which can later be converted into shares, MicroStrategy has been able to purchase more Bitcoin than it would have otherwise. As a result, the company’s valuation has exceeded its $43 billion Bitcoin holdings, with a current market capitalization of $73.2 billion.
Investors have been willing to pay a premium for exposure to Bitcoin through MicroStrategy’s stock. Currently, the stock trades at 1.6 times the value of its Bitcoin holdings, according to MSTR Tracker. In November, this premium reached 3.4 times. MicroStrategy’s share price has surged by 334% over the past year, surpassing Bitcoin’s 116% increase over the same period. Bernstein analysts argue that MicroStrategy is justifying its premium by consistently increasing its Bitcoin holdings per share.
However, 10X Research noted that stock investors are no longer willing to support MicroStrategy with an inflated stock price compared to its Bitcoin holdings. The implied price of $200,000 per Bitcoin for MicroStrategy shares indicates a growing rationality among investors who previously viewed MicroStrategy as a leveraged Bitcoin play.
While leveraged investment products do exist, enabling traders to gain greater exposure to an asset or benchmark, concerns have been raised about MicroStrategy’s valuation relative to its Bitcoin holdings. In November, influential investment firm Citron Research disclosed a short position in MicroStrategy while maintaining a long position in Bitcoin. Citron argued that the company had become detached from Bitcoin fundamentals.
Despite these concerns, MicroStrategy was added to the Nasdaq-100 last month, joining the stock market index that tracks top tech companies. Analysts believe that this move could result in billions of dollars flowing into MicroStrategy’s stock.
Bitcoin enthusiasts welcomed MicroStrategy’s inclusion in the index, and shortly after, the price of Bitcoin reached a peak of $108,000. However, since then, Bitcoin’s price has fallen by 10%, while MicroStrategy’s share price has experienced a more significant decline.
