MicroStrategy plunged nearly 50% from its high point, and Bitcoin still maintains high volatility
The American software company MicroStrategy launched a bold Bitcoin reserve strategy in 2020. This decision caused the stock price to surge 20 times in less than five years, and the market value once soared to US$82 billion, and was successfully included in Nasdaq Gram index.
However, MicroStrategy's share price has plummeted 46% to $289 from its all-time high of $543 in December 2024, and rebounded 10% to $300 at the close yesterday (1/2).
By comparison, Bitcoin ended December 2024 down 3% overall, still trading above $90,000.
As of December 31, 2024, MicroStrategy has invested a total of $27.9 billion to purchase 446,400 Bitcoins, with an average purchase price of approximately $62,428, currently valued at around $43 billion. Although MicroStrategy continues to buy Bitcoin, the volume of these purchases has gradually decreased from 55,500 coins at the end of November to 2,138 coins.
Source of the image: Bitcoin Treasuries. Changes in MicroStrategy's Bitcoin purchase volume over the past month.
Investing in MicroStrategy is like playing a leveraged Bitcoin game
According to CoinDesk, MicroStrategy's put-call skew has rebounded from -20% three weeks ago to zero, indicating that market sentiment has shifted from extremely bullish to neutral.
Markus Thielen, founder and analyst at 10x Research, stated that with MicroStrategy's stock price plummeting and other companies adopting Bitcoin as a reserve strategy on a smaller scale, the bullish momentum brought by the narrative of 'companies holding Bitcoin' seems to be weakening.
RIA Advisors Portfolio Manager Michael Lebowitz points out that MicroStrategy is essentially a leveraged Bitcoin holding company and warns that the company is taking advantage of investors.
He wrote last December that MicroStrategy's stock valuation is at least twice the value of its Bitcoin holdings, while its software business has almost no value, and it may even be negative. MicroStrategy's total software business revenue in Q3 2024 decreased by 10.3% year-on-year, with net losses more than doubling to $340.2 million.
Presto Research analyst Min Jung pointed out that when Bitcoin is in an upward trend, it allows MicroStrategy's stock price to rise, enabling the company to raise more funds to buy more Bitcoin, further driving up Bitcoin prices and creating a positive feedback loop.
However, the sustainability of this strategy depends on Bitcoin price performance, thus a bull market would be more favorable for MicroStrategy.
Analyst: Investors are becoming cautious about high-leverage games
According to a report by The Guardian in the UK, in October 2024, MicroStrategy announced plans to issue $21 billion in stock and $21 billion in fixed-income debt over the next three years, aimed at buying more Bitcoin.
Before Christmas, MicroStrategy indicated it would seek shareholder approval to increase its Class A common stock from 330 million shares to 10.33 billion shares, but this aggressive financing strategy has raised concerns about risk tolerance.
Even though MicroStrategy has recently fallen from its peak, it has still accumulated a 342% increase overall in 2024, far exceeding Bitcoin's annual growth rate, but recent market performance shows that investors are becoming cautious about high-leverage Bitcoin investment strategies.
As Thielen pointed out, when investors can purchase Bitcoin directly at a lower cost, they are no longer willing to pay MicroStrategy an implied price equivalent to $200,000 (or higher) per Bitcoin.
Further Reading:
MicroStrategy spends $17.5 billion to buy Bitcoin! Economists criticize: It's essentially a Ponzi scheme
'MicroStrategy's stock price is nearly halved! Bitcoin remains high, but is no one daring to play the leverage game anymore?' This article was first published in 'Crypto City'
