MicroStrategy's Bitcoin Proxy Faces Scrutiny as Institutional Investors Weigh in

MicroStrategy shares declined today after Kerrisdale Capital published a short report, claiming that the company is an overvalued substitute for Bitcoin. Kerrisdale's research is centered on the idea that the spread of Bitcoin exchange-traded products (ETPs) and exchange-traded funds (ETFs) has reduced MicroStrategy's viability as a Bitcoin proxy.

MicroStrategy's Proxy for Bitcoin Under Scrutiny Amidst Institutional Investor Stakes

Shares of MicroStrategy (NASDAQ: MSTR) exhibited a decline in value following the release of a comprehensive short report by Kerrisdale Capital, a prominent hedge fund. The report expounded upon Kerrisdale's bullish stance on Bitcoin (BTC USD) while concurrently expressing a bearish outlook on MSTR.

Kerrisdale asserted that MicroStrategy's valuation as a surrogate for Bitcoin is inflated, citing the growing availability of Bitcoin-related exchange-traded products (ETPs) and exchange-traded funds (ETFs). The hedge fund's thesis posits that MicroStrategy's allure as a direct Bitcoin exposure vehicle has waned due to the proliferation of these alternative investment options.

"The current implied Bitcoin price embedded within MicroStrategy's stock now exceeds $177,000, which is more than double the spot price of Bitcoin," stated Kerrisdale. "The days when MicroStrategy shares offered a unique and exclusive avenue for Bitcoin investment are long gone."

MicroStrategy has amassed a substantial Bitcoin reserve through equity offerings, convertible bonds, and debt financing. However, Kerrisdale argues that the resulting dilution has left the amount of Bitcoin represented by each MSTR share essentially unchanged, implying that value creation is inextricably linked to Bitcoin's price appreciation. Consequently, Kerrisdale maintains that acquiring MSTR shares offers minimal advantage over holding Bitcoin directly.

Kerrisdale further points out that MicroStrategy's stock premium has historically hovered at or below 2x for 94% of trading days since 2021. The current premium stands at 2.6x, significantly higher than the historical average of 1.3x.

Institutional ownership plays a crucial role in providing liquidity and stabilizing stock prices. Quarterly 13F filings reveal the positions of major investors, with the most recent data capturing holdings as of December 31st.

MicroStrategy's institutional investors have realized substantial gains in the fourth quarter. According to the latest 13F filings, 349 institutional investors held shares in MicroStrategy, representing a 22.46% increase compared to the previous quarter. These investors collectively owned 8.13 million shares, a 17.14% increase over the third quarter.

Amongst these institutional stakeholders, five prominent investors stand out:

• Morgan Stanley (NYSE: MS) acquired 299,083 shares, raising its stake to 602,441 shares.
• Susquehanna purchased 185,011 shares, increasing its holding to 287,180 shares.
• BlackRock (NYSE: BLACK) bought 116,704 shares, raising its stake to 1.02 million shares.
• T. Rowe Price (NASDAQ: TROW) acquired 70,696 shares, increasing its stake to 77,927 shares.
• FMR purchased 69,876 shares, raising its holding to 558,914 shares.

Despite the recent decline in share price, MicroStrategy's institutional investors continue to maintain significant stakes in the company, reflecting their confidence in the firm's long-term prospects. The evolving market dynamics and the emergence of alternative Bitcoin investment avenues may pose challenges to MicroStrategy's premium valuation, but the support from institutional investors provides a measure of stability and liquidity in the stock.