Jessy, Golden Finance
MicroStrategy's stock has been falling since hitting a new high of $543 on November 21, 2024, and is now 44% lower at $300. In comparison, the current price of Bitcoin is only about 10% lower than its peak of $107,000.
MicroStrategy stock price changes
Before the decline, MicroStrategy's stock had risen nearly 30 times from $20 in 2020 to its peak due to its aggressive purchases of Bitcoin.
MicroStrategy's stock price rises with the rise in Bitcoin price, and is called shadow Bitcoin. The increase in its stock price far exceeds the increase in Bitcoin, and it can also be called leveraged Bitcoin.
Now, this leveraged Bitcoin has also fallen due to reaching a local peak ahead of Bitcoin, with the decline far exceeding Bitcoin's pullback.
Why did MicroStrategy's stock fall? Is there a risk of further decline?
Why is it rising?
To understand why MicroStrategy's stock price fell sharply, we must first clarify why it rose sharply before and what the value support behind the stock price is.
In 2020, MicroStrategy began purchasing Bitcoin, becoming the first U.S. publicly traded company to integrate Bitcoin as a reserve asset. The first purchase announced by MicroStrategy was approximately 21,000 BTC, valued at over $250 million, when the price of Bitcoin was below $10,000.
Initially, it used cash purchases, and later shifted to raising funds through issuing and selling stocks and convertible bonds for purchases.
Currently, MicroStrategy holds a total of 446,400 Bitcoins, with a current market value of approximately $45 billion and a total purchase cost of up to $27.9 billion.
MicroStrategy was originally an intelligent software company, but after buying Bitcoin, its public image shifted to that of a 'shadow Bitcoin company.' From October 2000 to September 2020, MicroStrategy's stock price remained below $20 per share. As it continued to purchase Bitcoin, its stock price fluctuations began to detach from its core business, becoming a Bitcoin concept stock instead.
Thanks to its aggressive Bitcoin purchasing strategy in recent years, MicroStrategy's stock price soared nearly 30 times from $20 in 2020 to a high of $543.
In the rising market, MicroStrategy's stock price has acted as an amplifier for Bitcoin's price, with its increases in recent years far exceeding those of Bitcoin.
The rise in its stock price mainly comes from several aspects:
1. It holds a large amount of Bitcoin. As the price of Bitcoin rises, the company's asset value increases, which in turn drives the stock price up.
2. The market holds relatively optimistic expectations for the continued rise of Bitcoin. The heat in the cryptocurrency market and investors' optimistic sentiment will increase demand for MicroStrategy stock, thus pushing the stock price up.
3. The company raises funds through issuing stocks and convertible bonds to purchase Bitcoin, forming a cycle of 'financing — buying coins — pushing up market value — refinancing.' This unique business model attracts investors, leading to an increase in stock price.
From the analysis of the above reasons, it can be understood that MicroStrategy's stock price is highly dependent on Bitcoin, and it can be said that the fundamentals of its stock price are supported by the value of the Bitcoin it has purchased. The rise in its stock price relies on investors' confidence and expectations for the continued rise in Bitcoin prices.
Why is it falling?
As MicroStrategy's stock price continues to rise, the major short seller Citron Research has stated on social media platform X that it is shorting MicroStrategy, pointing out that MicroStrategy's trading volume has completely detached from the fundamentals of Bitcoin, and its market value far exceeds the actual value of the Bitcoin it holds.
As Citron has stated, currently MicroStrategy holds a total of 446,400 Bitcoins, with a current market value of approximately $45 billion, accounting for over 2% of the total global Bitcoin supply. At the peak of MicroStrategy's stock price, its market value exceeded $100 billion, more than twice the market value of its Bitcoin holdings. However, MicroStrategy's core business is intelligent software, and its profitability is not optimistic. According to MicroStrategy's financial report, its net loss increased in the third quarter of 2024, and its revenue fell short of expectations.
MicroStrategy's stock price began to decline after reaching a local peak of $543 on November 21, for the following reasons:
1. MicroStrategy's Bitcoin investment strategy is questioned.
Currently, MicroStrategy is using the method of issuing convertible bonds to purchase Bitcoin. According to statistics, MicroStrategy has issued approximately $13 billion in stock and $3 billion in convertible bonds, all of which have been used to purchase Bitcoin. Since October 31, MicroStrategy has continuously purchased Bitcoin for eight weeks, accumulating an additional 19,418 Bitcoins.
Its recent two Bitcoin investment actions were made at an average price of $970,000, and after recent purchases, Bitcoin experienced a decline. Although MicroStrategy continues to issue bonds to buy Bitcoin, the current purchase price is already high, causing investors to worry about the company's investment decisions and financial situation, thus affecting the stock price.
Moreover, MicroStrategy has almost completely shifted its business model to Bitcoin, overly relying on Bitcoin's price fluctuations and market performance, resulting in a high risk due to the singularity of the company's business. When the Bitcoin market experiences volatility or investor interest in Bitcoin wanes, MicroStrategy's stock price will be significantly affected.
2. MicroStrategy's leveraged ETF exacerbates the volatility of MicroStrategy's stock price.
MicroStrategy is a leveraged Bitcoin, and the related ETFs are leveraged MicroStrategy stock prices. This means that MicroStrategy itself is a leveraged bet on Bitcoin, while some of the current MicroStrategy leveraged ETFs are designed for investors who wish to make more aggressive bets on MicroStrategy stock.
Funds such as those launched by Tuttle Capital and Defiance ETFs focus on MicroStrategy stock to amplify returns associated with Bitcoin. These funds use swaps and options for leveraged trading but face liquidity issues, leading to underperformance. Investors are disappointed with the fund's poor performance, and some analysts believe that the launch of leveraged MicroStrategy ETFs has accelerated the volatility of the stock. These ETFs must increase or decrease their exposure daily to achieve leverage. Market makers providing swaps and options typically buy and sell actual MicroStrategy stock to hedge their risks.
3. Changes in market expectations.
Currently, MicroStrategy has been included in the Nasdaq 100 Index (the Nasdaq 100 Index is an index covering the largest non-financial companies in the U.S., reflecting the overall performance of various sectors such as technology, consumer goods, and biopharmaceuticals), representing its emergence as one of the top 100 companies by market capitalization on Nasdaq. Companies included in the Nasdaq 100 Index are typically subject to stricter financial regulation and market scrutiny, which raises higher demands on how MicroStrategy manages its Bitcoin assets. Entering the Nasdaq 100 is already a positive factor for MicroStrategy's stock price.
Concerns about MicroStrategy buying Bitcoin at high prices and the sharp rise in its stock price in a short time have raised market concerns about the existence of a bubble. When market worries about bubbles intensify, investors often choose to sell stocks to avoid risks, leading to a significant decline in stock prices.
4. Macroeconomic factors.
Similar to Bitcoin's recent pullback, MicroStrategy's stock price is also inevitably affected by macroeconomic conditions. Currently, U.S. Treasury yields remain high, and the dollar index keeps climbing. Some even predict that if inflation rebounds in 2025, the U.S. may restart interest rate hikes. The current global economic uncertainty, rising interest rates, and inflation could lead to a decrease in investors' risk appetite, reducing investments in high-risk assets such as MicroStrategy stock.
5. The number of MicroStrategy imitators has increased, coupled with the launch of Bitcoin spot ETFs, greatly reducing the rarity of its stock.
Seeing the behavior of MicroStrategy issuing bonds to buy Bitcoin, thereby inflating its own stock price, is so profitable that many listed companies are following suit, such as mining company Marathon Digital, Japanese investment company Metaplanet, and so on.
With a large number of companies flooding into this space, the scarcity of MicroStrategy's stock has significantly decreased. In the traditional financial market, if people want to invest in 'leveraged Bitcoin,' they now have other company stocks to choose from, as well as the option of Bitcoin spot ETFs.
Can MicroStrategy stock still be bought?
To put it directly — not recommended.
Currently, the biggest uncertainty in the investment market comes from macroeconomic factors. After Trump's return to the White House, the comprehensive tariff policy he announced carries significant uncertainty. If tariffs of up to 60% on China and 25% on other countries are implemented, it may trigger escalating global trade friction, reshaping the global trade landscape and potentially impacting U.S. inflation, GDP, currency value, and various investment channels, thus having a significant effect on the U.S. stock market.
Currently, there is extreme uncertainty in the Federal Reserve's interest rate policy. The market originally expected the Federal Reserve would continue to cut rates in 2025, but Fed Chairman Powell's cautious remarks in December 2024 imply that if the Fed's interest rate decisions do not align with market expectations — such as rate cuts falling short or sudden rate hikes — it could lead to a significant adjustment in the U.S. stock market.
Currently, as a leveraged Bitcoin, MicroStrategy's stock price is already relatively high. Although it has fallen 44% from its peak, it still maintains a tenfold increase compared to the company's stock price when it first bought Bitcoin. This far exceeds the increase in Bitcoin. On the other hand, the company's current market value is also far greater than the value of its Bitcoin reserves. All of this indicates that the company's stock has a significant bubble.
In the future, Bitcoin prices will rise again, and MicroStrategy's continuous behavior of issuing bonds to buy coins may again push up its stock price. However, it can be foreseen that, as a stock that has already been value-discovered, what supports its stock price is merely the price of Bitcoin, along with leverage on Bitcoin. Bitcoin will not be replaced, but this narrative of MicroStrategy will become outdated and be replaced.
In summary, the risk of entering MicroStrategy stock at present outweighs its potential returns.
