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 retreat
Due to its business model, MicroStrategy's stock price is highly correlated with bitcoin prices. In December 2024, bitcoin prices dropped about 10% from a high of $108,000 to around $97,000. This correction directly impacted MicroStrategy's balance sheet value, dragging down its stock price performance. Additionally, MicroStrategy's stock price has long maintained a premium relative to its bitcoin holdings. In November 2024, this premium was as high as 3.5 times, but by early 2025 it had contracted to 1.6 times. The contraction of the premium indicates that investor confidence in its 'leveraged bitcoin investment' narrative is waning.
Correlation of MSTR stock price with bitcoin trends (anchored to Binance BTCUSD pair)
As of December 2024, MicroStrategy holds approximately 446,000 bitcoins, worth about $43 billion, making it the largest corporate holder of bitcoin in the world. This massive holding gives it a significant position in the cryptocurrency market, and it was selected for the Nasdaq index in the same month, becoming one of the few crypto-related assets.
However, outside of MSTR, global corporations remain relatively cautious toward bitcoin as an emerging asset. Although the potential returns and diversification benefits of bitcoin have attracted some corporate interest, its high volatility, regulatory uncertainties, and compatibility issues with traditional corporate financial strategies have led most companies to adopt a wait-and-see approach or to make limited attempts. For example, Microsoft shareholders voted down a bitcoin investment proposal in December 2024, one of the main reasons being that bitcoin's high volatility contradicts the company's need for 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 bitcoin bullish sentiment generated by the influx of traditional companies seems to be losing momentum.'
Leverage strategy under pressure
MicroStrategy finances its continuous bitcoin acquisitions through issuing 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 publicly stated multiple times that bitcoin is 'digital gold' and the best tool to hedge against inflation. He is also actively lobbying for U.S. companies and the government to embrace bitcoin.
Due to MicroStrategy's business model being highly reliant on bitcoin prices, any fluctuations in bitcoin prices will significantly impact its stock price. After bitcoin reached a historic high, some investors chose to take profits, resulting in pressure on MicroStrategy's stock price. On the policy front, related assets also faced certain resistance. The Federal Reserve released hawkish signals during its December 2024 meeting, indicating potential further interest rate hikes to curb inflation. This policy shift has dampened the appeal of related assets, and as a leveraged bitcoin investment tool, MicroStrategy has been particularly affected.
MicroStrategy's leveraged strategy amplified gains during upward trends but also increased risks during downturns. Market concerns about its debt burden and refinancing ability have intensified, especially in the context of declining bitcoin prices, which may put greater financial pressure on the company. In the backdrop of bitcoin price corrections and weakening market sentiment, MicroStrategy's narrative is indeed challenged in the short term. Investors' concerns about its high premiums and leverage risks have led to a significant stock price retreat.
Outlook
We can see that MicroStrategy's stock price performance will still highly depend on the price of bitcoin. Its status as the 'crypto Federal Reserve' is challenged in the short term due to bitcoin price corrections and shifts in market sentiment, but its long-term potential still depends on bitcoin's price trajectory and the company's capital management 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 continuous strategy of increasing bitcoin holdings may still attract investors in the long run.
As investors' valuations of MicroStrategy become more rational, 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 may lead to further adjustments in stock price, but it also provides better entry opportunities for long-term investors.
New accounting rules effective in 2025 will allow MicroStrategy to report the fair value of its bitcoin holdings, which may significantly enhance 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 performance may continue to be under pressure in the short term, its solid position as the largest corporate holder of bitcoin still holds certain 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 may once again become the focus of investor attention.
