Jessy, Jinse Finance
After hitting a new high of $543 on November 21, 2024, MicroStrategy's stock has been falling, and is now 44% lower than its peak, at $300. In comparison, the current price of Bitcoin is only about 10% lower than its peak of $107,000.
MicroStrategy Stock Price Change
Before the decline, MicroStrategy's stock price rose nearly 30 times from $20 in 2020 to its peak because of its aggressive purchase of Bitcoin.
MicroStrategy's stock price rose as the price of Bitcoin rose, and it was called shadow Bitcoin. The increase in its stock price far exceeded the increase in Bitcoin, and it can also be called leveraged Bitcoin.
Now, this leveraged Bitcoin has also fallen because it reached its stage peak ahead of Bitcoin, and the decline is much greater than the callback of Bitcoin.
Why did MicroStrategy's stock fall? Is there a risk of further decline?
Why did it rise?
To answer why MicroStrategy's stock price plummeted, we must first clarify why it rose sharply before and what the value support behind the stock price is.
In 2020, MicroStrategy began to purchase Bitcoin, and it was also the first US listed company to integrate Bitcoin as a reserve asset. The first acquisition announced by MicroStrategy included approximately 21,000 BTC, worth more than $250 million, when the price of Bitcoin was less than $10,000.
Initially, it used cash purchases, and then turned to the use of 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 purchase cost of up to $27.9 billion.
MicroStrategy was originally an intelligent software company. After buying Bitcoin, its image in the outside world has become a "shadow company" of Bitcoin. From October 2000 to September 2020, MicroStrategy's stock price has remained below $20 per share. As it continues to buy Bitcoin, the rise and fall of its stock price has begun to deviate from its own business, and instead become a Bitcoin concept stock.
Thanks to the strategy of actively buying Bitcoin in recent years, MicroStrategy's stock price has soared nearly 30 times from $20 in 2020 to a high of $543.
In the rising market, MicroStrategy's stock price has become an amplifier of Bitcoin's price, and its increase in recent years has far exceeded Bitcoin.
The rise in its stock price mainly comes from the following aspects:
1. It holds a large amount of Bitcoin. As the price of Bitcoin rises, the value of the company's assets rises, which in turn drives up its stock price.
2. The market holds a relatively optimistic expectation for the continued rise of Bitcoin. The heat of the cryptocurrency market and the optimism of investors will increase investors' demand for MicroStrategy's stocks, thereby driving up the stock price.
3. The company raises funds to purchase Bitcoin by issuing stocks and convertible bonds, forming a cycle of "financing - purchasing coins - pushing up market value - refinancing". This unique business model attracts investors and causes the stock price to rise.
Through the above reasons, we can know that MicroStrategy's stock price itself is highly dependent on Bitcoin. It can be said that the fundamentals of its stock price are supported by the value of the Bitcoin it purchased, and its stock price rise depends on investors' confidence and expectations for the continued rise in Bitcoin prices.
Why fall?
As MicroStrategy's stock price continues to rise, the big short Citron Research said on the social platform X that it is shorting MicroStrategy, pointing out that MicroStrategy's trading volume has completely deviated from the fundamentals of Bitcoin, and its market value far exceeds the actual value of its Bitcoin holdings.
As Citron said, MicroStrategy currently holds a total of 446,400 bitcoins, with a current market value of approximately $45 billion, and the bitcoins it holds currently account for more than 2% of the total global bitcoins. At the peak of MicroStrategy's stock price, its market value exceeded $100 billion, which is more than twice the market value of the bitcoins it holds. MicroStrategy's own 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 its revenue fell short of expectations.
MicroStrategy's stock price began to fall after reaching a staged top of $543 on November 21, for the following reasons:
1. MicroStrategy's Bitcoin investment strategy is questioned
At present, MicroStrategy adopts the method of issuing convertible bonds to purchase Bitcoin. According to statistics, MicroStrategy has issued about $13 billion in stocks and $3 billion in convertible bonds, and all of these funds have been used to purchase Bitcoin. Since October 31, MicroStrategy has been buying Bitcoin for eight consecutive weeks, with a total of 19,418 Bitcoins.
Its recent two and three Bitcoin investments were both bought at an average high of 970 million, and after the recent purchases, Bitcoin has fallen. Although MicroStrategy is still issuing bonds to purchase Bitcoin, the current purchase price is already high, which makes investors worry about the company's investment decisions and financial situation, which in turn affects the stock price.
Moreover, MicroStrategy has almost completely shifted its business model to Bitcoin, relying too much on Bitcoin's price fluctuations and market performance, and the company's single business brings higher risks. When the Bitcoin market fluctuates or investors' interest in Bitcoin decreases, MicroStrategy's stock price will be greatly affected.
2. MicroStrategy leveraged ETF exacerbates the volatility of MicroStrategy's stock price
MicroStrategy is leveraged Bitcoin, and the related ETF is leveraged MicroStrategy's stock price. That is, MicroStrategy itself is a leveraged bet on Bitcoin, and some of the current MicroStrategy leveraged ETFs are designed for investors who want to make more aggressive bets on MicroStrategy stocks.
Leveraged funds such as Tuttle Capital and Defiance ETFs focus on MicroStrategy stocks to amplify their returns associated with Bitcoin. These funds use swaps and options to leverage, but face liquidity problems, resulting in performance that is not as good as expected. Investors are disappointed with the fund's skewed performance, and some analysts believe that the launch of leveraged MicroStrategy ETFs has accelerated the stock's volatility. These ETFs must increase or decrease their exposure every day to achieve the leveraged effect. Market makers who provide swaps and options usually buy and sell actual MicroStrategy stocks to hedge their risks.
3. Changes in market expectations
At present, MicroStrategy has been included in the Nasdaq 100 Index (the Nasdaq 100 Index is an index covering the stocks of the largest non-financial companies in the United States, reflecting the overall performance of multiple industries such as technology, consumer goods, and biopharmaceuticals), which means that it has become one of the 100 companies with the largest market value on the Nasdaq. Companies included in the Nasdaq 100 Index are usually subject to stricter financial supervision and market scrutiny, which also puts higher requirements on how MicroStrategy manages its Bitcoin assets. Entering the Nasdaq 100 is a favorable landing for MicroStrategy's stock price.
The high price of MicroStrategy's purchase of Bitcoin and the sharp rise in MicroStrategy's stock price in the short term have made the market worry that there is a bubble. When market concerns about bubbles intensify, investors often choose to sell stocks to avoid risks, causing a sharp drop in stock prices.
4. Macroeconomic factors
Like Bitcoin's recent pullback, MicroStrategy's stock price is also inevitably affected by the macro economy. At present, the yield of US bonds remains high, and the US dollar index has repeatedly climbed. People even judge that if inflation rebounds in 2025, the United States may restart interest rate hikes. At present, the uncertainty of the global economic situation, rising interest rates, inflation and other macroeconomic factors may lead to a decline in investors' risk appetite and reduce investment in high-risk assets such as MicroStrategy stocks.
5. The increase in MicroStrategy imitators, coupled with the launch of Bitcoin spot ETFs, has greatly reduced the scarcity of its stocks
Seeing that MicroStrategy's behavior of issuing bonds to buy Bitcoin and thus inflating its own stock price is so profitable, many listed companies have followed suit, such as mining company Marathon Digital, Japanese investment company Metaplanet, etc.
A large number of companies have entered this track, and the scarcity of MicroStrategy's stocks has been greatly reduced. In the traditional financial market, if people want to invest in "leveraged Bitcoin", they also have other company stocks to choose from, or they can choose Bitcoin spot ETFs.
Can MicroStrategy stocks be bought again?
Directly state the conclusion - not recommended.
At present, the biggest uncertainty in the investment market is macroeconomic factors. After Trump returned to the White House, there is great uncertainty in his declared policy of comprehensive tariff increase. If a tariff policy of up to 60% on China and 25% on other countries is implemented, it may trigger an escalation of global trade frictions, which will not only reshape the global trade pattern, but also impact the inflation, GDP, currency value and various investment channels of the United States, and thus have a significant impact on the US stock market.
The current interest rate policy of the Federal Reserve is extremely uncertain. The market originally expected the Federal Reserve to continue to cut interest rates in 2025, but Federal Reserve Chairman Powell's statement in December 2024 was more cautious. If the Federal Reserve's interest rate decision does not meet market expectations, such as a rate cut that is less than expected or a sudden rate hike, this will trigger a substantial adjustment in the US stock market.
At present, as a leveraged Bitcoin, MicroStrategy's stock price is already high. Although it has fallen 44% from its highest point, its stock price has still increased by more than ten times from the stock price when the company first bought Bitcoin. This is much higher than the increase in Bitcoin. On the other hand, the current market value of the company is also much higher than the market value of its Bitcoin reserves. All these indicate that there is a large bubble in the company's stock.
The price of Bitcoin will rise again in the future, and MicroStrategy's continued issuance of bonds to buy coins may also push up its stock price again, but it can be foreseen that as a stock that has been value-discovered, its stock price is only supported by the price of Bitcoin and the leverage of its stock on Bitcoin. Bitcoin will not be replaced, but MicroStrategy's narrative will become outdated and will be replaced.
In summary, the risks of investing in MicroStrategy stocks are currently greater than the benefits.
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