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Bitcoin’s price crunch earlier this week led to a massive correction in crypto and cryptocurrency-focused stocks across the board, with MicroStrategy (MSTR) taking the biggest hit. Shares of the world’s largest Bitcoin holding fell to $1,018 on Wednesday, nearly half their high of $1,919 in late March.
Meanwhile, Bitcoin (BTC) fell to around $56,800 during the same period, down 23% from its all-time high of $73,737 on March 14. It then rebounded above $61,000 to close this week.
While painful for MSTR holders, the overall decline marks a healthy correction for a stock that has been trading at a huge premium to its underlying BTC holdings for months. As of Wednesday, the premium (excluding corporate debt) was +67% of BTC, down from +175% at the end of March.
“I think the stock is now closer to fair value,” said Markus Thielen, founder of 10x Research. decryption. At the end of March, his company assert MSTR should trade close to $1,000 per share, and new investors should probably stay in Bitcoin.
As of Friday, MicroStrategy’s market capitalization was $21.37 billion, and its balance sheet included 214,400 BTC worth $13.26 billion based on current market prices.
Because MicroStrategy invests almost all of its money in BTC, the company has been likened to a de facto Bitcoin spot ETF, a fund that issues stocks directly backed by a fixed amount of BTC. However, since MicroStrategy doesn’t actually have a market maker or buyback mechanism like an official Bitcoin ETF, its shares can easily trade at a premium or discount to their underlying BTC holdings depending on market sentiment.
Companies may also use special strategies that actual ETF issuers cannot, such as issuing cheap debt to acquire more BTC or selling shares while they are trading at a premium to increase the company’s BTC-per-share ratio.
As MSTR premiums exploded earlier this year, critics warned that MSTR was trading at “unjustifiable” levels and needed to be adjusted to bring it closer to its actual balance sheet value. MicroStrategy’s stalwart claims the premium is justified, pricing the company’s ability to earn more BTC per share in the future.
But others say those basics mean nothing now.
“MSTR essentially operates as a leverage play against the Bitcoin price, typically moving 1.5 times the Bitcoin price,” said James Butterfill, head of research at CoinShares. decryption. “Ultimately, fundamentals are less important to MSTR and more important is their view on monetary policy and the direction of the Bitcoin price accordingly.”
Butterfill said Bitcoin’s recent correction was likely an “overreaction” to the FOMC’s potentially hawkish guidance on Wednesday, adding that it is now on the rise again after the central bank took an unexpectedly dovish monetary policy stance.
“This position should continue to support both MSTR and Bitcoin price, with the price likely bottoming in the near term,” Butterfill said.
Edited by Ryan Ozawa.
