Bitcoin’s recent price dip earlier this week had a ripple effect on the entire crypto market, causing a significant correction in crypto-related stocks such as MicroStrategy (MSTR), which was hit particularly hard. The company’s shares plummeted to just $1,018 on Wednesday, nearly halving from their peak value of $1,919 at the end of March.
Simultaneously, Bitcoin (BTC) also experienced a decline, dropping to around $56,800 over the same period, marking a 23% decrease from its all-time high of $73,737 on March 14. However, it has since bounced back to over $61,000 as the week draws to a close.
While the downturn may have been painful for MSTR shareholders, it does suggest a much-needed correction for the stock, which has been trading at a significant premium over its Bitcoin holdings for quite some time. As of Wednesday, the premium (excluding company debt) had reduced to +67% of its BTC, compared to +175% in late March.
Markus Thielen, founder of 10x Research, commented that the stock now seems closer to fair value after the correction. In late March, his firm indicated that MSTR should ideally be trading closer to $1,000 per share, emphasizing the potential benefits of sticking with Bitcoin for new investors.
MicroStrategy’s current market cap stands at $21.37 billion, with its balance sheet holding 214,400 BTC valued at $13.26 billion at current market rates.
Given that MicroStrategy essentially invests all of its assets in BTC, it is often likened to a de facto Bitcoin spot ETF despite lacking certain features such as market makers and redemption mechanisms typically associated with official Bitcoin ETFs. Consequently, the stock can fluctuate at premiums or discounts to its underlying BTC holdings based on market sentiment.
With the recent explosion of the MSTR premium, critics have raised concerns about its unjustifiable levels and the necessity for a correction aligning it with the company’s balance sheet value. Proponents, on the other hand, argue that the premium reflects MicroStrategy’s potential to acquire more BTC per share in the future.
James Butterfill, Head of Research at CoinShares, views MSTR as a leveraged play on Bitcoin prices, often moving at 1.5 times the rate of Bitcoin. He stressed that, for MSTR, factors like monetary policy outlook and Bitcoin price direction are more influential than traditional fundamentals.
Butterfill noted that Bitcoin’s recent correction may have been an overreaction to perceived hawkish guidance from the FOMC but has since rebounded following a dovish monetary policy stance from the central bank. This shift is expected to provide support for both MSTR and Bitcoin prices, potentially indicating a short-term price floor.
In conclusion, the interplay between MicroStrategy’s stock performance and Bitcoin prices remains intricate, with market sentiment, company strategies, and macroeconomic factors all playing crucial roles in shaping their trajectory in the crypto landscape.
