MicroStrategy Inc. (MSTR) experienced a sharp share price drop yesterday, with the price plummeting more than 20% in intraday trading before closing down 16.2%. This significant drop occurred while Bitcoin (BTC) rose to a new all-time high just under $100,000. Despite the setback, the MSTR continues to rise an impressive 479% this year.
The share price drop follows comments from Andrew Left, founder of Citron Research, who expressed concerns about MicroStrategy’s valuation relative to Bitcoin fundamentals. “Now that investing in Bitcoin is easier than ever (ETFs, COIN, HOOD), MSTR volume has completely disconnected from BTC fundamentals,” Links declared. “While Citron remains bullish on Bitcoin, we have hedged with a short MSTR position. Much respect for that Michael Saylor, but even he must know that MSTR is overheated.
Is MicroStrategy Really Overvalued?
In contrast to the Left’s bearish outlook, Charles Edwards, founder and CEO of crypto hedge fund Capriole Investments, offered a robust defense of MicroStrategy’s valuation. In one analysis shared on
“Everyone thinks MicroStrategy is overvalued. It’s not,” Edwards said. He suggested that if the current Bitcoin cycle mirrors the previous one – even under less favorable conditions – and if Saylor continues to aggressively acquire Bitcoin, MicroStrategy has significant growth potential. “Saylor should buy Bitcoin more aggressively as their NAV premium increases. The 21/21 plan That won’t work anymore because the market has already priced it in,” he noted.
Edwards highlighted the magnitude of the recent capital raises, highlighting that “Saylor has raised $9.6 billion in the last nine days alone.” He claimed that with Bitcoin’s market cap about to surpass $2 trillion, there is a significant audience of bond traders who do not have direct access to Bitcoin due to investment mandates. “The US bond market is worth $50 trillion – more than 25 times the size of Bitcoin. Today, MSTR is one of the few instruments that gives bond traders exposure to Bitcoin,” Edwards explains. He added that MicroStrategy’s bond issues are “consistently oversubscribed,” demonstrating strong demand for MSTR stock.
Edwards addressed potential skepticism about his projections and clarified that his analysis is based on specific assumptions. “If you think Bitcoin will go to $200,000, and Saylor buys an additional $40 billion in Bitcoin, then the price today can be considered ‘fairly’ priced in the short term,” he said. However, he acknowledged that this scenario would require Saylor to be “much more aggressive than currently planned” in buying Bitcoin and that “there are a lot of risks.”
Edwards also warned investors about the volatility of MicroStrategy’s NAV premium. “NAV premiums for MSTR fluctuate widely and aggressively. Don’t expect things to be stable with Bitcoin,” he warned. He emphasized that his analysis is a “scenario analysis” and should not be used to predict daily returns, especially with speculative Bitcoin price targets such as $1 million.
Concluding his insights, Edwards underlined the potential impact of MicroStrategy’s continued Bitcoin accumulation on the market. “Saylor must continue to actively close the premium over the next year by raising much more capital, but if he does, there is still potential for MSTR stock,” he asserted. “Either way, we have a huge Bitcoin buyer in the market that is about to go into overdrive.”
At the time of writing, MSTR was trading pre-market at $395.89.
Featured image created with DALL.E, chart from TradingView.com