MicroStrategy, the Bitcoin development company, saw a sharp decline in its stock price on Thursday, falling by 16.2%, despite Bitcoin (BTC) reaching a new all-time high just shy of $100,000. The company’s market cap, which had surged to over $100 billion earlier this week, is now about $80 billion following the drop. This decline occurred even as Bitcoin’s price continued to rise, pushing the cryptocurrency market cap to new records.
At its peak, MicroStrategy’s market valuation was more than three times the value of the 331,000 Bitcoin it holds, a disparity that some analysts find concerning. Citron Research’s Andrew Left, who had once recommended investing in Bitcoin via MicroStrategy, expressed his view that the company’s stock has become detached from Bitcoin’s fundamental value. Left remains bullish on Bitcoin but has hedged his position by shorting MicroStrategy’s stock.
Despite the recent downturn, MicroStrategy’s stock has experienced impressive gains throughout 2024, up by more than five times since the beginning of the year and nearly eight times from the same time last year. However, this rapid growth has led some to question the sustainability of its valuation. Technician Bracco highlighted the stock’s parabolic rise, calling it a “textbook parabolic short” opportunity, noting the stock’s extreme price movements and high trading volume.
The rise in MicroStrategy’s stock price is largely tied to its Bitcoin holdings, creating a feedback loop where the company’s market cap increases as Bitcoin prices rise, allowing it to acquire more Bitcoin. This “positive flywheel effect” has contributed to the stock’s performance but also led to concerns about its growing disconnect from the underlying value of Bitcoin. Analyst Jonathan Weil noted that while buying Bitcoin directly is a more straightforward bet on the cryptocurrency’s future, investing in MicroStrategy’s stock is a riskier wager on the efficiency of markets.
