Shares of MicroStrategy (MSTR) dropped more than 8% following the company’s latest $209 million Bitcoin purchase on Dec. 30, raising concerns among market observers about the firm’s heavily leveraged strategy.
Key Points:
Share Price Drop: MicroStrategy’s stock fell 5.3% within an hour of its Bitcoin acquisition announcement, from $318.89 to $302.09, and ended the day at $302.96. The stock then slipped another 3.19% in after-hours trading, bringing the price down to $293.59.
Bitcoin Purchase: The purchase marks the eighth consecutive week MicroStrategy has bought Bitcoin, adding 194,180 BTC to its holdings since October 31.
Funding the Purchase: To finance the acquisition, MicroStrategy sold 592,987 shares during the same week.
Concerns About Leverage:
Observers, such as The Kobeissi Letter, expressed concerns about MicroStrategy’s leverage, particularly after the company proposed a 10 billion share increase. With a mix of convertible notes and debt issuances, MicroStrategy has become heavily reliant on borrowing to fund its Bitcoin buying spree.
Leverage Impact: Some analysts warn that the company’s strategy could place it in a “lose-lose” situation, especially if the Bitcoin price or stock price falters. The firm might need to issue more debt or equity to continue its Bitcoin purchases.
Market Reactions:
Stock Price Volatility: While MicroStrategy’s stock has dropped 20.2% over the last 30 days, it has surged 342.2% since the beginning of 2024, reflecting the volatile nature of its strategy.
Future Outlook: Felix Hartmann, founder of Hartmann Capital, predicted that MicroStrategy’s stock could eventually “implode,” although he also acknowledged that in a Bitcoin bull market, the company could leverage up further, potentially repaying future debts easily if its Bitcoin holdings grow significantly.
Hyperbitcoinization Strategy:
MicroStrategy’s CEO, Michael Saylor, has termed the company’s strategy as “hyperbitcoinization,” where it trades at a premium to buy more Bitcoin, thereby increasing its Bitcoin per share through leverage.
BTC per Share Growth: This strategy involves selling shares above net asset value (NAV), acquiring more Bitcoin, and reducing leverage, creating a snowball effect where the company increases its Bitcoin holdings over time.
Nasdaq-100 Inclusion:
MicroStrategy’s growth was further highlighted on Dec. 23, when it was added to the Nasdaq-100 index, placing it among the top 100 largest companies by market capitalization, alongside companies like Palantir Technologies and Axon Enterprise.
Despite recent volatility and concerns about leverage, MicroStrategy’s bold Bitcoin strategy has made it a major player in the crypto space, with a future that remains uncertain, depending on Bitcoin’s price movements and the firm’s ability to manage its leverage.
