Emily Walker
MicroStrategy Inc. (MSTR) saw its stock value drop significantly yesterday, falling by more than 20% during the day and ending with a 16.2% decrease. This happened even as Bitcoin (BTC) reached a record high close to $100,000. Nonetheless, MSTR has demonstrated a remarkable 479% increase in value since the start of the year.
The decline can be attributed to comments made by Andrew Left, founder of Citron Research, who raised alarms about the company’s valuation against Bitcoin’s fundamentals. Left stated that with Bitcoin investments becoming more accessible through platforms like ETFs and trading apps, MSTR’s trading volume has strayed from BTC fundamentals. While he maintains a positive outlook on Bitcoin, he has taken a short position on MSTR, indicating that the stock may be overvalued. “Much respect to Michael Saylor, but even he must know MSTR is overheated,” he remarked.
Evaluating MicroStrategy’s Valuation
In contrast to Left’s pessimism, Charles Edwards, the CEO of Capriole Investments, defended MicroStrategy’s value. In a recent analysis, he suggested that the market cap and its value relative to its Bitcoin assets are reasonable under specific conditions.
Edwards remarked, “Everyone thinks MicroStrategy is overvalued. It’s not,” emphasizing that if the current Bitcoin cycle resembles the last one—even in a less favorable climate—and if Saylor continues to purchase Bitcoin intensively, then MSTR may have considerable growth prospects. He mentioned that Saylor should ramp up his Bitcoin acquisitions as the premium on their net asset value (NAV) grows, since the previous acquisition strategy has already been factored into the market.
He also highlighted the substantial capital raised recently, noting that “Saylor’s raised $9.6 billion in just the last nine days.” He explained that with Bitcoin’s market value expected to surpass $2 trillion, there exists a large group of bond traders who are restricted from directly investing in Bitcoin. “The US bond market stands at $50 trillion—over 25 times larger than Bitcoin. MSTR is one of the few means for bond traders to gain exposure to Bitcoin,” he added, pointing out that MicroStrategy’s bond offerings are consistently oversubscribed, indicating strong interest in the stock.
Addressing any doubts about his projections, Edwards explained that his assessment is rooted in specific assumptions. He noted, “If you anticipate Bitcoin reaching $200,000 and Saylor purchases an additional $40 billion in Bitcoin, then MSTR could be seen as ‘fairly’ priced today in the short term.” However, he recognized that this requires Saylor to be “much more aggressive than currently planned” and acknowledged the potential risks involved.
Edwards also cautioned about the variability of MSTR’s NAV premium, stating that “the NAV premiums fluctuate widely and aggressively. Don’t expect stability relative to Bitcoin.” He reiterated that his analysis should be viewed as a scenario evaluation rather than a forecast for daily returns, particularly when considering speculative price targets like $1 million for Bitcoin.
In conclusion, Edwards highlighted the potential consequences of MicroStrategy’s ongoing Bitcoin purchases on the market. “Saylor needs to stay active in the upcoming year to effectively narrow the premium by raising significantly more capital, but if he does, MSTR equity could have further potential,” he stated. “Either way, there’s a significant Bitcoin buyer entering the market that is about to ramp up.”
At the time of writing, MSTR shares were trading at $395.89 in pre-market.
