Jessy, Golden Finance
MicroStrategy's stock price has been falling since reaching a new high of $543 on November 21, 2024, currently down 44% from that peak, priced at $300. In contrast, Bitcoin's current price has only dropped about 10% from its peak of $107,000.
MicroStrategy's stock price changes
Before the decline, MicroStrategy's stock price increased nearly 30 times from $20 in 2020 due to its aggressive Bitcoin purchasing behavior.
MicroStrategy's stock price rises as Bitcoin prices rise and is referred to as shadow Bitcoin, while the extent of its stock price increase far exceeds that of Bitcoin, also known as leveraged Bitcoin.
Now, this leveraged Bitcoin is also experiencing a drop after reaching a temporary peak ahead of Bitcoin, with a decline much greater than Bitcoin's correction.
Why is MicroStrategy's stock down? Is there a risk of further decline?
Why did it rise?
To answer why MicroStrategy's stock price has plummeted, it is essential to first clarify why it previously surged and what the underlying value support behind the stock price is.
In 2020, MicroStrategy began purchasing Bitcoin, becoming the first U.S. listed 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 Bitcoin's price was below $10,000.
Initially, it used cash purchases, and later shifted to issuing and selling stocks and convertible bonds to raise funds for purchases.
Currently, MicroStrategy holds a total of 446,400 Bitcoins, with a current market value of approximately $45 billion, and a total acquisition cost of up to $27.9 billion.
MicroStrategy was originally an intelligent software company, but after buying Bitcoin, its public image shifted to a 'shadow company' of Bitcoin. From October 2000 to September 2020, MicroStrategy's stock price remained below $20 per share. However, as it continued to purchase Bitcoin, its stock price fluctuations began to detach from its core business, becoming more of a Bitcoin concept stock.
Thanks to the strategy of actively purchasing Bitcoin in recent years, MicroStrategy's stock price soared nearly 30 times from $20 in 2020, reaching a high of $543.
In a rising market, MicroStrategy's stock price has become an amplifier for Bitcoin prices, and its increase in recent years has far exceeded that of Bitcoin.
The rise in its stock price mainly comes from the following aspects:
1. Its large holdings of Bitcoin mean that as Bitcoin prices rise, the company's asset value increases, subsequently driving up the stock price.
2. There is a relatively optimistic expectation in the market for the continuous rise in Bitcoin, and the heat of the cryptocurrency market and investors' optimistic sentiment will increase demand for MicroStrategy stocks, thus driving up the stock price.
3. The company raises funds through issuing stocks and convertible bonds to purchase Bitcoin, forming a cycle of 'financing - buying coins - boosting market value - refinancing.' This unique business model attracts investors, driving up the stock price.
From the above analysis, it can be seen that MicroStrategy's stock price is highly dependent on Bitcoin. Its stock price's fundamentals are supported by the value of the Bitcoins it has purchased, and its price increase relies on investors' confidence and expectations of the continuous rise in Bitcoin prices.
Why did it drop?
As MicroStrategy's stock price continues to rise, the bearish Citron Research announced on social platform X that it is shorting MicroStrategy, pointing out that MicroStrategy's trading volume has completely detached from Bitcoin's fundamentals, and its market value greatly exceeds the actual value of its held Bitcoin.
As Citron Research stated, currently MicroStrategy holds a total of 446,400 Bitcoins, with a current market value of approximately $45 billion, and the Bitcoins it holds account for over 2% of the total global Bitcoin supply. When MicroStrategy's stock price peaked, its market value exceeded $100 billion, at which point the market value was more than twice that of its held Bitcoin. However, MicroStrategy's main business is intelligent software, and the profitability of this business is not optimistic. According to MicroStrategy's financial report, in the third quarter of 2024, its net loss increased, and revenue fell short of expectations.
MicroStrategy's stock price began its downward trend after reaching a peak of $543 on November 21, with the following reasons:
1. MicroStrategy's Bitcoin investment strategy is questioned.
Currently, MicroStrategy is using convertible bond issuance to purchase Bitcoin. According to statistics, MicroStrategy has issued approximately $13 billion in stock and $3 billion in convertible bonds, using all of these funds to purchase Bitcoin. Since October 31, MicroStrategy has consecutively purchased Bitcoin for eight weeks, accumulating an additional 19,418 Bitcoins.
In its last two Bitcoin investment actions, it bought at an average price of 970,000, and after the recent purchases, Bitcoin has experienced declines. Although MicroStrategy continues to issue bonds to acquire Bitcoin, the current purchase price is already quite high, raising concerns among investors about the company's investment decisions and financial condition, thereby affecting the stock price.
Moreover, MicroStrategy has almost completely shifted its business model to Bitcoin, being overly dependent on Bitcoin's price fluctuations and market performance, which brings high risks due to the company's business singularity. When the Bitcoin market experiences volatility or investor interest in Bitcoin diminishes, MicroStrategy's stock price is significantly affected.
2. MicroStrategy leveraged ETFs exacerbate the volatility of MicroStrategy's stock price.
MicroStrategy is leveraged Bitcoin, and related ETFs are leveraged MicroStrategy stock prices. In other words, MicroStrategy itself is a leveraged bet on Bitcoin, while some current leveraged MicroStrategy ETFs are designed for investors who wish to make more aggressive bets on MicroStrategy stocks.
Such as the leveraged funds launched by Tuttle Capital and Defiance ETFs, focusing on MicroStrategy stocks to amplify their returns related to Bitcoin. These funds use swaps and options for leveraged operations but face liquidity issues, resulting in performance below expectations. Investors are disappointed with the fund's deviation in performance, and some analysts believe that the launch of leveraged MicroStrategy ETFs has accelerated the volatility of this stock. These ETFs must adjust their exposure daily to achieve leverage. Market makers providing swaps and options usually buy and sell the 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 that includes the stocks of the largest non-financial companies in the U.S., reflecting the overall performance of multiple industries such as technology, consumer goods, and biopharmaceuticals), which signifies its position as one of the 100 largest companies by market value in NASDAQ. Companies included in the NASDAQ 100 index are typically subject to stricter financial regulations and market scrutiny, which raises higher demands on how MicroStrategy manages its Bitcoin assets. Entering the NASDAQ 100 is, in itself, a favorable development for MicroStrategy's stock price.
Regarding MicroStrategy's high-priced Bitcoin purchases and the significant short-term rise in its stock price, concerns about potential bubbles in the market have arisen. When market concerns about the bubble intensify, investors often choose to sell stocks to avoid risk, leading to a sharp decline in stock prices.
4. Macroeconomic factors
Like Bitcoin's recent pullback, MicroStrategy's stock price is also inevitably influenced by macroeconomic factors. Currently, U.S. Treasury yields remain high, and the U.S. dollar index keeps climbing. Some even judge that if inflation rebounds in 2025, the U.S. may restart rate hikes. Currently, the uncertainty in the global economic situation, rising interest rates, and inflationary macroeconomic factors may lead to a decline in investors' risk appetite, reducing investments in high-risk assets like MicroStrategy stock.
5. An increase in imitators of MicroStrategy, combined with the launch of Bitcoin spot ETFs, significantly reduces 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 have followed suit, such as mining company Marathon Digital, Japanese investment firm Metaplanet, and others.
With a large number of companies rushing into this field, the scarcity of MicroStrategy's stock has significantly decreased. In traditional financial markets, if people want to invest in 'leveraged Bitcoin', there are other company stocks available for selection, and they can also choose 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 returned to the White House, the comprehensive tariff increase policy he announced has significant uncertainty. If tariffs of up to 60% on China and 25% on other countries are implemented, it may trigger a global trade friction escalation, reshaping global trade patterns and impacting U.S. inflation, GDP, currency value, and various investment channels, thereby having a major effect on the U.S. stock market.
Currently, there is a high degree of uncertainty regarding the Federal Reserve's interest rate policy. The market originally expected the Federal Reserve to continue cutting rates in 2025, but Federal Reserve Chairman Powell's statements in December 2024 were relatively cautious. If the Federal Reserve's interest rate decisions do not align with market expectations, such as falling short of expected rate cuts or suddenly raising rates, it could trigger significant adjustments in the U.S. stock market.
Currently, as a leveraged Bitcoin, MicroStrategy's stock price is already high. Although it has dropped 44% from its peak, it still maintains a tenfold increase from the stock price when the company first bought Bitcoin. This far exceeds the increase in Bitcoin. On the other hand, its current market value is also far greater than the value of the Bitcoin it holds. All of this indicates that the company's stock is experiencing significant bubble dynamics.
In the future, Bitcoin's price will likely rise again, and MicroStrategy's ongoing bond issuance to buy Bitcoin may push its stock price up again. However, it is foreseeable that as a stock that has already been valued, what supports its stock price is merely the price of Bitcoin, along with the leverage of its stock and Bitcoin. Bitcoin will not be replaced, but MicroStrategy's narrative will become outdated and be replaced.
In summary, the risk of currently getting into MicroStrategy stock is greater than its potential reward.
