MicroStrategy stock drops 30% despite Bitcoin approaching $100,000.. Why?
November 22, 2024
Shares of MicroStrategy Inc. (MSTR) plunged more than 30% to $372 on Thursday after influential investor Citron Research disclosed it had taken a short position against the company while maintaining a long position in bitcoin.
The announcement comes amid growing concerns that MicroStrategy stock is overvalued, with some seeing the company's valuation as excessive.
Citron Research says investing in Bitcoin is “easier than ever,” pointing to Bitcoin ETFs and stocks available on trading platforms like Coinbase and Robinhood. Click here for crypto project press releases or advertising services
Citron, who backed MicroStrategy in 2020 as the “best way to profit from Bitcoin,” added that the company’s valuation is “completely disconnected” from Bitcoin’s fundamentals, even as the cryptocurrency approaches $100,000 after a three-week rally.
MSTR's stock plunge erased about $20 billion from MicroStrategy's market value, marking a dramatic turnaround after the stock hit an internal record high of $543 in early trading.
Since then, MicroStrategy stock has become the second-most active stock on the Nasdaq in terms of dollar trading volume, behind NVDA, according to Eric Balchunas, Bloomberg's senior ETF analyst.
The notes, which mature in 2029, carry a conversion rate of 1.4872 shares per $1,000 of principal, which equates to $672 per share—a 55% premium over recent trading prices.
In such a scenario, MicroStrategy may be forced to sell its Bitcoin to pay off creditors, especially with limited cash reserves estimated at around $46.3 million, which could lead to a series of forced liquidations and successive declines in the price of Bitcoin.
MicroStrategy currently holds around 331,200 BTC purchased at an average price of $49,874 per coin, making it “the world’s first and largest Bitcoin treasury company.”
Its total bitcoin holdings are worth about $32 billion, while the company's market cap has risen to about $107 billion—a significant increase from late 2023 when the stock was roughly worth the same as its bitcoin holdings.
Despite Thursday's drop in the stock, the company's year-to-date performance remains strong, with the stock up nearly 500% compared to Bitcoin's 110% rise and the S&P 500's 25% gain.
However, as Citron’s short position suggests, maintaining this outperformance may be a challenge as investors assess the benefits of MicroStrategy’s premium over direct investment in Bitcoin.
