rewrite this title Why MicroStrategy Shares Have Tanked 45% Despite Billions in Bitcoin Buys – Decrypt

One of the hottest Bitcoin trades in 2024 is slumping into the New Year.

As of Thursday, MicroStrategy’s share price had fallen 45% from its November peak—sliding to $300 from a record price of $543 around six weeks ago.

The Tysons, Virginia-based software firm went gangbusters on Bitcoin last year, purchasing billions of dollars worth of the cryptocurrency using equity and debt. On Monday, the company topped off its stash of 446,400 Bitcoin, worth $43 billion, with a $200 million Bitcoin purchase.

Since MicroStrategy’s share price peaked, the Bitcoin-buying behemoth has purchased BTC five different times, yet each purchase has gotten smaller. After purchasing $5.4 billion worth of Bitcoin on Nov. 25, for example, Monday’s buy represented its lightest allocation since August. That was not enough, it turned out, to staunch the stock’s prolonged plunge.

MicroStrategy has solidified its status as the world’s largest corporate holder of Bitcoin—adopting the asset as a novel way to shore up its balance sheet in 2020—but the firm has also garnered attention on Wall Street more recently as a potentially risky leveraged Bitcoin bet. 

By issuing $7.3 billion worth of convertible notes, a form of debt that can later be converted into shares, the company has been able to purchase more Bitcoin than it could otherwise. At the same time, the company’s valuation has ballooned past that of its $43 billion Bitcoin holdings, with a current market capitalization of $73.2 billion.

Investors have been paying a premium for Bitcoin exposure when it comes to MicroStrategy’s stock, which currently trades hands at 1.6x that of its Bitcoin holdings according to MSTR Tracker. While investors can get pure Bitcoin exposure through products like spot ETFs or by simply buying the asset itself, that premium hit 3.4x in November.

MicroStrategy’s share price has risen 334% over the past year, outpacing Bitcoin’s 116% climb over the same period. That’s led Bernstein analysts to say MicroStrategy is “building a case” for its premium, alongside a proven ability to increase its Bitcoin holdings per share.

With an implied price of $200,000 per Bitcoin for MicroStrategy shares, however, it appears that “stock investors are no longer willing to prop up MicroStrategy with an inflated” stock price relative to its Bitcoin holdings, 10X Research wrote in a Thursday note.

“The shift underscores a growing rationality among investors who previously bought into the unofficial narrative of MicroStrategy as ‘a leveraged Bitcoin play,’” 10X Research added.

Leveraged investment products, which enable traders to gain greater market exposure to an asset or benchmark, do exist. But as MicroStrategy’s valuation rocketed last year, the company’s value relative to its Bitcoin holdings was flagged by some as unsustainable.

In November, the influential investment firm Citron Research unveiled a short position in MicroStrategy, while maintaining a long position in Bitcoin. Citron, which had formerly backed MicroStrategy, said the company had become “completely detached” from Bitcoin fundamentals.

Despite rumblings about MicroStrategy’s premium, the firm was added to the Nasdaq-100 last month, finding a new place within the stock market index tracking top tech companies. Analysts have said that the move could result in billions of dollars flowing into MicroStrategy’s stock.

MicroStrategy’s inclusion in the index was lauded by Bitcoin enthusiasts, who saw the asset’s price peak at $108,000 a handful of days later. Since then, Bitcoin’s price has tumbled 10%, while MicroStrategy’s share price has fallen much further.

Edited by Andrew Hayward