You might be overpaying for MicroStrategy compared to Bitcoin
MicroStrategy, a company listed on the Nasdaq under the ticker MSTR, has accumulated a substantial amount of Bitcoin in recent years. The value of its Bitcoin holdings is close to $15 billion, while its market capitalization on the stock exchange stands at nearly $29 billion. This has led to concerns that MicroStrategy’s stock may be trading at a premium compared to the value of Bitcoin itself.
Kerrisdale Capital’s perspective on MicroStrategy’s stock premium
Kerrisdale Capital, an investor known for short selling MSTR shares, has highlighted the discrepancy between the value of MicroStrategy’s stock and its Bitcoin holdings. They argue that the stock is being traded at an unjustified premium compared to Bitcoin, which is the primary asset underpinning its value.
- Kerrisdale Capital holds a long position on BTC but is short on MSTR stock.
- They view MSTR stock as a “proxy for Bitcoin” and believe that its current valuation does not reflect the actual value of the digital asset.
- According to Kerrisdale’s analysis, the entire value of MicroStrategy is derived from its Bitcoin holdings, making the premium on the stock unjustifiable.
MicroStrategy’s stock performance on the market
MicroStrategy began accumulating Bitcoin in August 2020 when its stock was trading at less than $120. Subsequently, the price of MSTR shares experienced significant fluctuations, reaching over $1,000 at one point and then dropping back to around $140. However, a recent rally pushed the stock’s price to $1,900, reflecting a 280% increase in less than two months.
- The stock market capitalization for MicroStrategy was less than $8.5 billion before the rally.
- The surge in MSTR price has resulted in a noticeable premium compared to Bitcoin’s price movement during the same period.
- The market capitalization of MicroStrategy now far exceeds the value of its original software business, overshadowed by its Bitcoin holdings.
Why the premium matters
Kerrisdale Capital estimates that the premium on MSTR compared to Bitcoin is over 50%, with the MicroStrategy stock trading at around two and a half times the value of BTC held by the company. This discrepancy has driven investors to short MSTR shares, anticipating a correction in its price.
- Other investors, such as S3 Partners, have also taken short positions on MSTR.
- The recent decline in MicroStrategy’s stock price may be attributed to the growing awareness of this premium.
- While the stock has experienced significant gains in recent weeks, a potential bubble could lead to a correction in its price.
Hot Take: What does this mean for you?
If you are considering investing in MicroStrategy or Bitcoin, it is essential to assess the current premium on MSTR compared to Bitcoin’s actual value. Understanding the dynamics of these assets can help you make informed investment decisions and navigate potential risks associated with overvalued stocks.
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