The Paradox of MicroStrategy’s Bitcoin Strategy

• MicroStrategy’s shares have fallen 45% since November despite significant Bitcoin investments.
• The firm’s Bitcoin buying has reduced in scale, leading to investor concerns.
• Analysts question the sustainability of MicroStrategy’s debt and equity financing for Bitcoin purchases.
• The company’s market cap now exceeds its Bitcoin holdings’ value, raising questions about valuation.

Why MicroStrategy’s Shares Are Falling Despite Bitcoin Acquisition

You might be wondering, how could a company deeply invested in Bitcoin see its stock plummet when Bitcoin itself is rallying? That’s the case with MicroStrategy, which has seen its shares tank by 45% from their peak in November, despite continuing to hoard Bitcoin.

MicroStrategy has been the largest corporate holder of Bitcoin, amassing 446,400 BTC, which is now valued at around $43 billion. However, despite these buys, their share price has not followed Bitcoin’s upward trajectory. Instead, it has experienced a significant drop. This discrepancy has puzzled investors and analysts alike.

Recently, the scale of MicroStrategy’s Bitcoin purchases has diminished. Previously hefty investments have turned into smaller buys, which might signal to investors that the peak of aggressive acquisition might be behind us.

This reduction in buying power could be interpreted as a lack of confidence in Bitcoin’s immediate future gains or a cautious financial strategy post the aggressive expansion.

Funding the Bitcoin Dream: Debt and Equity

MicroStrategy has been funding its Bitcoin acquisitions through convertible notes and at-the-market share sales, leading to concerns about leverage. The company issued $7.3 billion in convertible notes, which has raised eyebrows about the sustainability of this approach. As noted in recent discussions on X, there’s a growing concern that this strategy might backfire if Bitcoin’s price does not continue to rise as expected.

The continuous issuance of new shares to fund Bitcoin purchases has led to dilution of existing shares, potentially impacting the stock price negatively.

Market Perception and Valuation

Despite the drop in share price, MicroStrategy’s market capitalization stands at $73.2 billion, a figure that well exceeds the value of its Bitcoin holdings.

This suggests investors are paying a premium for Bitcoin exposure through MicroStrategy’s stock. However, this premium has been under scrutiny, especially after analysts like Alex Krüger suggested that MicroStrategy’s Bitcoin holdings should not exceed 4% of the total supply to avoid adverse market effects.