Why did MicroStrategy’s share price plummet 44%? Can the stock still be bought?

Jessy, Golden Finance

MicroStrategy's stock has been falling since hitting a new high of $543 on November 21, 2024. It has now fallen 44% from its highest point, and the price is $300. In comparison, the current price of Bitcoin has only fallen by about 10% from its highest point of $107,000.

Micro strategy stock price changes

Before the decline, MicroStrategy's stock surged nearly 30-fold from its peak of $20 in 2020 due to its aggressive buying of Bitcoin.

The stock price of micro-strategy rises as the price of Bitcoin rises, which is called shadow Bitcoin. The rise in its stock price far exceeds the rise of Bitcoin, and it can also be called leveraged Bitcoin.

Now, this leveraged Bitcoin has also fallen earlier than Bitcoin reached its phased peak, and the decline is far greater than Bitcoin's correction.

Why are MicroStrategy shares falling? Is there a risk of further declines?

Why did it go up?

To answer why MicroStrategy's stock price has plummeted, we must first clarify why it rose sharply before and what is the value support behind the stock price.

In 2020, MicroStrategy began to purchase Bitcoin. It was also the first U.S. listed company to integrate Bitcoin as a reserve asset. The first buy announced by MicroStrategy was around 21,000 BTC, worth over $250 million, at a time when the price of Bitcoin was below $10,000.

Initially, it used cash to purchase, and then switched to using the issuance and sale of shares and convertible bonds to raise funds for the purchase.

MicroStrategy currently holds a total of 446,400 Bitcoins, with a current market value of approximately US$45 billion, and a total purchase cost of US$27.9 billion.

MicroStrategy was originally an intelligent software company. After buying Bitcoin, its company's image in the outside world became a "shadow company" of Bitcoin. From October 2000 to September 2020, MicroStrategy's stock price remained below $20 per share. As it continued to purchase Bitcoin, the rise and fall of its stock price began to be separated from its own business, and instead became a Bitcoin concept stock.

Also benefiting from the strategy of actively buying Bitcoin over the years, MicroStrategy's stock price has soared nearly 30 times from US$20 in 2020 to a high of US$543.

In the rising market, the stock price of MicroStrategy has become an amplifier of the price of Bitcoin, and its increase in recent years has far exceeded that of Bitcoin.

The rise in its stock price is mainly due to the following aspects:

1. It holds a large amount of Bitcoin. As the price of Bitcoin rises, the value of the company's assets rises, which in turn drives up the stock price.

2. The market has relatively optimistic expectations for the continued rise of Bitcoin. The popularity of the cryptocurrency market and investor optimism will increase investors' demand for micro-strategy stocks, thereby driving up stock prices.

3. The company raises funds to purchase Bitcoin through the issuance of stocks and convertible bonds, forming a cycle of "financing - purchasing coins

• pushing up market value - refinancing". This unique business model attracts investors and causes the stock price to rise.

From the analysis of the above reasons, we can know that the stock price of MicroStrategy itself is highly dependent on Bitcoin. It can be said that the fundamentals of its stock price are supported by the value of the Bitcoin it purchased, and the increase in its stock price relies on investment. Investors’ confidence and expectations for the continued rise in Bitcoin prices.

Why did it fall?

As the stock price of MicroStrategy continues to rise, Big Short Citron Research said on the social platform actual value.

As Citron said, MicroStrategy currently holds a total of 446,400 Bitcoins, with a current market value of approximately US$45 billion, and the Bitcoins it holds currently account for more than 2% of the total global Bitcoin supply. At the peak of MicroStrategy's stock price, its market value exceeded US$100 billion. At this time, its market value was more than twice the market value of the Bitcoin it held. MicroStrategy's own business is intelligent software, and the profitability of this business is not optimistic. According to MicroStrategy's financial report, in the third quarter of 2024, its net loss increased and its revenue was lower than expected.

MicroStrategy’s stock price began to decline after reaching a stage top of $543 on November 21. The reasons are roughly as follows:

1. Micro-strategy Bitcoin investment strategy is questioned

Currently, MicroStrategy adopts the method of issuing convertible bonds to purchase Bitcoin. According to statistics, MicroStrategy has issued approximately US$13 billion in stocks and US$3 billion in convertible bonds, and has used all these funds to purchase Bitcoin. Since October 31, MicroStrategy has been buying Bitcoin for eight consecutive weeks, accumulating a total of 19,418 Bitcoins.

His two recent Bitcoin investments were all bought at a high of an average price of 970 million. However, after these recent purchases, Bitcoin has experienced a decline. Although MicroStrategy continues to issue bonds to purchase Bitcoin, the current buying price is already high, which makes investors worry about the company's investment decisions and financial status, which in turn affects the stock price.

Moreover, the current micro-strategy has almost completely shifted its business model to Bitcoin, relying too much on Bitcoin's price fluctuations and market performance, and the company's single business brings high risks. When the Bitcoin market fluctuates or investors' interest in Bitcoin weakens, MicroStrategy's stock price will be greatly affected.

2. Micro-strategy leveraged ETFs increase the volatility of micro-strategy stock prices

The micro-strategy is Bitcoin with added leverage, and the related ETF is the leveraged micro-strategy stock price. In other words, the micro strategy itself is a leveraged bet on Bitcoin, and some current micro strategy leveraged ETFs are designed for investors who want to make more aggressive bets on stock micro strategy tickets.

Leveraged funds such as those launched by Tuttle Capital Capital and Defiance ETFs focus on micro-strategy stocks to amplify their returns related to Bitcoin. These funds carry out leverage operations through swaps and options, but face liquidity problems, resulting in less than expected performance. Investors were disappointed with the fund's skewed performance, and some analysts believed that the launch of the leveraged micro-strategy ETF accelerated the stock's volatility. These ETFs must increase or decrease their exposure each day to achieve the effect of leverage. Market makers offering swaps and options will typically buy and sell the actual micro-strategy stocks to hedge their risk.

3. Changes in market expectations

At present, micro-strategy has been included in the Nasdaq 100 Index (the Nasdaq 100 Index is an index covering the stocks of the largest non-financial companies in the United States, reflecting the overall performance of multiple industries such as technology, consumer goods, biopharmaceuticals, etc.), which represents It has become one of the 100 largest companies on the Nasdaq by market capitalization. Companies included in the Nasdaq 100 Index are usually subject to stricter financial supervision and market scrutiny, which also places higher requirements on how micro-strategies manage their Bitcoin assets. Entering the Nasdaq 100 is a good implementation of the stock price of a micro strategy.

The high-priced purchase of Bitcoin by micro-strategy and the sharp rise in the stock price of micro-strategy in the short term have made the market worried about the existence of a bubble. When market concerns about bubbles intensify, investors often choose to sell stocks to avoid risks, triggering sharp falls in stock prices.

4. Macroeconomic factors

Like Bitcoin’s recent pullback, MicroStrategy’s share prices are not immune to macroeconomic impacts. Currently, U.S. bond yields remain high and the U.S. dollar index continues to rise. People even judge that the United States may restart interest rate hikes if inflation rebounds in 2025. At present, the uncertainty of the global economic situation, rising interest rates, inflation and other macroeconomic factors may cause investors to reduce their risk appetite and reduce investment in high-risk assets such as micro-strategy stocks.

5. The number of micro-strategy imitators has increased, and coupled with the launch of Bitcoin spot ETFs, the rarity of its stocks has been greatly reduced.

Seeing that the micro-strategy of issuing debt to buy Bitcoin and thereby inflating its own stock price is so profitable, many listed companies have followed suit, such as the mining company Marathon Digital, the Japanese investment company Metaplanet, and so on.

A large number of companies have poured into this track, and the scarcity of micro-strategy stocks has been greatly reduced. In the traditional financial market, if people want to invest in "leveraged Bitcoin", there are other company stocks to choose from, and they can also choose Bitcoin spot ETFs.

Can MicroStrategy stocks still be bought?

Let’s just say the conclusion – not recommended.

At present, the biggest uncertainty in the investment market is macroeconomic factors. After Trump returns to the White House, there is great uncertainty in his declared policy of comprehensively imposing tariffs. If a tariff policy of up to 60% on China and 25% on other countries is implemented, it may trigger an escalation of global trade frictions, which will not only reshape the global trade pattern, but may also impact U.S. inflation, GDP, currency value and various investment channels. Have a significant impact on the U.S. stock market.

There is currently a high degree of uncertainty in the Fed's interest rate policy. The market originally expected the Federal Reserve to continue to cut interest rates in 2025, but Federal Reserve Chairman Powell's statement in December 2024 was more cautious. If the Federal Reserve's interest rate decision is inconsistent with market expectations, such as an interest rate cut that is less than expected or a sudden interest rate increase, this will trigger the US stock market substantial adjustments.

Currently, as a leveraged Bitcoin, MicroStrategy's stock price is already on the high side. Although it has fallen 44% from its highest point, its stock price is still more than ten times higher than when the company first bought Bitcoin. increase. This is much higher than Bitcoin’s gains. On the other hand, the current market value of the company is also much higher than the market value of its Bitcoin reserves. All these indicate that there is a large bubble in the company's stock.

The price of Bitcoin will continue to rise in the future, and MicroStrategy’s continued debt issuance and currency purchases may also push up its stock price again. However, it is foreseeable that as a stock whose value has been discovered, it is only Bitcoin’s stock price that supports it. price, and the leverage its shares add to Bitcoin. Bitcoin will not be replaced, but the narrative of micro-strategy will be outdated and replaced.

To sum up, at present, the risks of stocks with micro strategy are greater than their returns.