MicroStrategy, the business intelligence firm closely tied to Bitcoin through its massive cryptocurrency holdings, experienced a sharp decline of 16.2% in its stock price on Thursday, despite Bitcoin approaching a record-breaking price close to $100,000. This drop occurred even as Bitcoin continued to surge, showcasing a rare disconnect between the company’s stock and the performance of the cryptocurrency. Although this decline represents a temporary blip, it remains significant in the context of MicroStrategy’s stellar growth this year—its stock has surged more than fivefold in 2024 and nearly eight times over the past 12 months.
The key issue at play is the striking divergence between MicroStrategy’s market valuation and the value of the Bitcoin it holds. At its peak on Thursday, MicroStrategy’s market cap was more than $100 billion, yet its Bitcoin holdings—around 331,000 BTC—are valued at about $32.5 billion. This disproportionate valuation has raised concerns among analysts like Andrew Left of Citron Research, who has shifted from being a supporter of the stock to shorting it. Left argues that MicroStrategy’s valuation has become detached from Bitcoin’s fundamentals, pointing to an overvaluation that could create problems down the road.
Meanwhile, MicroStrategy’s positive feedback loop, where the company buys more Bitcoin as the cryptocurrency’s price rises, has fueled its stock’s remarkable climb. But as Jonathan Weil from The Wall Street Journal notes, this dynamic creates a highly speculative situation where investors aren’t just betting on Bitcoin’s price, but also on the inefficiency of the market to correct the overvaluation. Weil concludes that while buying Bitcoin might make sense for those optimistic about its future, buying MicroStrategy’s stock is a gamble on market inefficiency.
In the short term, while Bitcoin’s continued rise could support MicroStrategy’s stock, the growing concerns about its inflated valuation and the company’s reliance on Bitcoin’s performance suggest potential risks for investors, particularly if Bitcoin’s price faces a downturn.
