Bitcoin’s meteoric rise has turned out to be a windfall for Microstrategy (Nasdaq: MSTR), which has amassed 331,200 BTC by dollar-cost averaging since 2020. The company spent $16.535 billion to acquire this substantial cache, now valued at $32.649 billion. Meanwhile, its Nasdaq-listed shares have soared, with a 171% jump in just six months and a staggering 511% increase year-to-date.
MSTR shares dipped on Thursday but have modestly bounced back on Friday.
Investors are willingly paying a premium for MSTR shares, largely because of the company’s unconventional financial strategy and the perceived promise of future gains. Microstrategy employs a leveraged approach to expand its BTC holdings, using tools like at-the-market equity offerings and convertible senior notes. This method allows the company to control more bitcoin than it could solely with its equity, maximizing asset value during bitcoin price increases.
This strategy has sparked a mix of enthusiasm and skepticism. Some analysts warn that the premium on MSTR shares could reverse, especially if bitcoin prices take a nosedive. For instance, a 50% decline in bitcoin’s value might lead to an even steeper 60%-80% drop in MSTR’s stock price due to its leverage, potentially wiping out the premium entirely. Bitcoin advocate Will Clemente weighed in on this scenario in a post on X on Thursday.
“MSTR premium is the GBTC premium of this cycle. Study when GBTC premium flipped negative in 2021,” Clemente said.
Some investors view MSTR as a more lucrative option than holding bitcoin directly, believing the higher yield justifies the premium. Others, however, aren’t convinced. On Thursday, Andrew Left, a prominent short seller and the mind behind the online investment newsletter Citron Research, weighed in on the matter. Through the Citron X account on X, Citron offered kudos to Microstrategy’s founder Michael Saylor—before swiftly pivoting to sharp criticism.
“While Citron remains bullish on bitcoin, we’ve hedged with a short MSTR position,” Citron posted. “Much respect to Saylor, but even he must know MSTR is overheated.” MSTR shares closed Thursday in the red, dropping 16% against the U.S. dollar. By 11 a.m. Eastern Time on Friday, however, the stock had bounced back, climbing 6.5%.
As of the latest data, approximately 15% of Microstrategy’s publicly traded stock is being shorted, indicating a notable level of bearish sentiment among investors while it has been on a bullish uptrend. This reflects a broader skepticism about whether the company’s stock can sustain its rapid growth, especially given the volatility in bitcoin prices and the potential risks associated with its leveraged positions.
Microstrategy’s remarkable ascent highlights a critical tension in the market: the allure of high-stakes strategies versus the inherent risks of leveraging volatile assets. As bitcoin’s trajectory remains bullish today but uncertain tomorrow, the company’s fate will likely hinge on its ability to navigate this precarious balance, leaving investors to weigh the promise of outsized returns against the specter of significant losses.
