MicroStrategy, the biggest corporate Bitcoin holder, is attracting a wave of short-sellers who are betting that its stock rally has reached a peak.
Investors are questioning whether MSTR, which has surged over 600% this year, has any more gas left in the proverbial tank.
“MicroStrategy’s trading volume has completely detached from Bitcoin fundamentals,” Citron Research said in a Thursday tweet. “MSTR is overheated.”
With Bitcoin now less than 1% away from breaking $100,000 for the first time, a continued rally could put the squeeze on premature short sellers.
MicroStrategy shorts
The latest market data shows that around 15% of the company’s publicly traded stock is now being shorted.
The company’s stock — MSTR — has seen wild price swings lately.
MicroStrategy, trading at just $120 in early September, surged to an all-time high of $535 on Wednesday before tumbling back below $400.
Short sellers like Citron argue that MicroStrategy’s stock has become unreasonably inflated compared to the value of its 331,200 Bitcoin stockpile.
Back in March, Kerrisdale Capital highlighted this disconnect, noting that the company’s stock implied a Bitcoin price of $177,000 — more than 2.5 times the price at the time.
“The days when MicroStrategy shares represented a rare, unique way to gain access to Bitcoin are long over,” Kerrisdale wrote, pointing to the rise of ETFs and the stocks Coinbase and Robinhood as more cost-effective alternatives.
“None of the reasons commonly provided for MicroStrategy’s relative attractiveness justify paying well over double for the same coin.”
But the premium has only widened since Kerrisdale’s analysis.
A recent report from Sherwood noted that MicroStrategy is now worth over $106 billion, more than triple the estimated value of its Bitcoin holdings of around $30 billion.
MicroStrategy has been no stranger to leveraging this premium to its own benefit.
“When MicroStrategy is trading at a premium to its underlying bitcoin, it can advantageously issue equity to buy more Bitcoin than the equity it’s giving up,” Sherwood explained.
Buying more Bitcoin
Some analysts refer to this as the “Bitcoin flywheel effect.”
By using low-cost debt to purchase additional Bitcoin, the company amplifies its holdings, and the stock price benefits from Bitcoin’s rising value.
On Thursday, MicroStrategy revealed that it was once again leveraging this flywheel to acquire more Bitcoin.
The company recently completed a $3 billion sale of 0% convertible senior notes due 2029, with plans to use the proceeds to expand its Bitcoin reserves.
The strategy has certainly delivered results in a bull market, but critics point to potential risks.
If Bitcoin prices were to reverse, the company’s heavily leveraged position could become a significant liability, forcing it to sell Bitcoin to meet debt obligations.
Crypto market movers
Bitcoin is up 1.2% over the past 24 hours to $98,755.
Ethereum is up 1.4% over the past 24 hours to $3,353.
What we’re reading
This Banana Zone is Different — Milk Road
Flurry of Crypto.com acquisitions reveals Robinhood-style ambitions — DL News
Microsoft about to buy $BTC? — Milk Road
SEC chief Gary Gensler says he’ll resign on Trump’s inauguration — DL News
Trump’s Plans for a ‘Crypto Czar’ and a Crypto Advisory Council: Here’s What We Know — Unchained
Kyle Baird is DL News’ Weekend Editor. Got a tip? Email at kbaird@dlnews.com.
