Can the “Crypto Federal Reserve” regain its glory?
Written by: Pzai, Foresight News
As a company with Bitcoin reserves as its core strategy, MicroStrategy (MSTR) has been favored by U.S. stock investors in recent years due to its firm support for Bitcoin and the Bitcoin-crazy market environment.
However, since hitting an all-time high of $589 on November 21, MSTR's stock price has fallen by more than 44% to $300, and its market value has fallen by 34% in the past two weeks alone. As a crypto asset that stands out in the U.S. stock market, subtle changes in the market environment have also turned into drastic fluctuations in stock prices. In the end, can the narrative of the "Crypto Federal Reserve" continue to maintain its former glory?
High point pullback
Due to its business model, MicroStrategy's stock price is highly correlated with Bitcoin prices. In December 2024, Bitcoin's price fell about 10% from a high of $108,000 to around $97,000. This pullback directly affected the value of MicroStrategy's balance sheet, dragging down its stock performance. Historically, MicroStrategy's stock price has traded at a premium relative to its Bitcoin holdings. In November 2024, this premium reached as high as 3.5 times, but shrank to 1.6 times by early 2025. The contraction of the premium indicates that investors' confidence in its 'leveraged Bitcoin investment' narrative is waning.
Correlation between MSTR stock price and Bitcoin trends (anchored to Binance BTCUSD pair)
As of December 2024, MicroStrategy holds approximately 446,000 Bitcoins, valued at about $43 billion, making it the largest corporate holder of Bitcoin globally. This massive holding positions it significantly in the cryptocurrency market, and it was included in the Nasdaq index in the same month, becoming one of the few crypto-related assets listed.
However, outside of MSTR, global companies remain relatively cautious about Bitcoin as an emerging asset. While the potential returns and diversification advantages of Bitcoin have attracted some companies' attention, its high volatility, regulatory uncertainty, and compatibility issues with traditional corporate financial strategies have led most companies to adopt a wait-and-see approach or to undertake limited attempts. For example, Microsoft shareholders rejected a Bitcoin investment proposal in December 2024, with one of the main reasons being that Bitcoin's high volatility contradicts the company's pursuit of stable investments. Markus Thielen, founder of 10x Research, stated in a report to clients: 'As MicroStrategy's stock price has fallen 44% from its peak, while other companies are adopting Bitcoin as a reserve asset strategy on a smaller scale, the bullish narrative (of traditional companies flooding in) seems to be losing momentum.'
Leverage strategy under pressure
MicroStrategy finances its continued increase in Bitcoin holdings through the issuance of stocks and convertible bonds. This strategy is seen as a 'flywheel converting fiat currency into Bitcoin' during a Bitcoin bull market and has attracted a large number of investors. The company's founder and CEO, Michael Saylor, has repeatedly stated that Bitcoin is 'digital gold' and the best tool for hedging against inflation. He is also actively lobbying American companies and the government to embrace Bitcoin.
Given that MicroStrategy's business model heavily relies on Bitcoin prices, any fluctuations in Bitcoin prices will significantly impact its stock price. After Bitcoin set a historic high, some investors chose to take profits, putting pressure on MicroStrategy's stock price. On the policy front, related assets are facing certain resistance. The Federal Reserve released hawkish signals during its December 2024 meeting, hinting at potential further interest rate hikes to curb inflation. This policy shift dampened the appeal of related assets, and as a leveraged Bitcoin investment tool, MicroStrategy was particularly affected.
MicroStrategy's leveraged strategy amplified gains during the upswing but also increased risks during downturns. Concerns about its debt burden and refinancing ability have intensified, especially in the context of falling Bitcoin prices, which could put greater financial pressure on the company. Given the Bitcoin price pullback and weakening market sentiment, MicroStrategy's narrative is indeed challenged in the short term. Investors' worries about its high premium and leveraged risks have led to a significant drop in its stock price.
Outlook
We can see that MicroStrategy's stock performance will still heavily depend on Bitcoin prices. Its status as the 'crypto Federal Reserve' is challenged in the short term due to Bitcoin price pullbacks and shifts in market sentiment, but its long-term potential still hinges on the price trends of Bitcoin and the company's capital operation capabilities. If Bitcoin prices return to an upward trajectory, MicroStrategy's narrative may regain support, especially with the expectation that Bitcoin will be widely accepted as a store of value during Trump's presidency, its strategy of continuously increasing Bitcoin holdings may still attract investors in the long run.
As investors become more rational about MicroStrategy's valuation, the de-leveraging of its stock price may bring it closer to the value of its Bitcoin holdings rather than maintaining a high premium. This rationalization process could lead to further adjustments in stock price but also provide better entry opportunities for long-term investors.
The new accounting rules that will take effect in 2025 will allow MicroStrategy to report the value of its Bitcoin holdings at fair value, which could significantly boost its net income and attract more institutional investors, potentially even leading to its inclusion in the S&P 500 index (though this possibility is small). Although MicroStrategy's stock price may continue to be under pressure in the short term, its solid position as the largest corporate holder of Bitcoin still holds strategic significance in the market.
As of the time of writing, MSTR's stock price is $300.01. As the Bitcoin market gradually warms up, market sentiment is also expected to reflect in its price. If the Bitcoin market returns to an upward trend, MicroStrategy could again become a focal point for investors.
