MicroStrategy Falls 16% Despite New Bitcoin Record as Some Question Valuation

One of the more impressive runs higher ever seen in stocks took at least a brief breather on Thursday, with Bitcoin Development Company MicroStrategy (MSTR) sporting a double-digit percentage loss even as the price of bitcoin (BTC) surged to a new record high just shy of $100,000.

Bitcoin Development Company MicroStrategy (MSTR) took a hit on Thursday, even as the price of bitcoin (BTC) surged to a new record high.

After rising to more than five times the price at the start of 2024, shares of MicroStrategy fell 16.2% on the day. At one point, the stock was down more than 20%.

Despite the sharp decline, shares are still up more than five-fold for the year and nearly eight times from the level of one year ago.

The company's market cap this week rose to more than three times the amount of bitcoin it held.

"MicroStrategy's [valuation] has completely detached from bitcoin fundamentals," wrote Citron Research's Andrew Left earlier in the day.

A former bull on the stock who recommended four years ago that investors get long bitcoin by buying MicroStrategy, Left said he remains bullish on BTC but has hedged by shorting MSTR.

Of that valuation, MicroStrategy's market cap yesterday and earlier on Thursday topped $100 million, or more than three times the value of the roughly 331,000 bitcoin on its balance sheet ($32.5 million at the current price near $98,000).

With today's price decline, MicroStrategy's market cap has sunk to about $80 million.

"MicroStrategy has officially met my criteria for a textbook parabolic short," wrote well-followed technician Bracco on X prior to the market open on Thursday.

Bracco noted three consecutive days of double-digit percentage gains and another major overnight gap higher, among other factors, including that MSTR's dollar volume on Wednesday topped that of mega-cap names like Nvidia and Tesla and that a leveraged ETF dedicated to the stock was the fifth-most traded fund in the entire market.

Writing early Thursday in the WSJ's Heard on the Street column, Jonathan Weil took note of the positive flywheel effect that's provided such a boost to the stock of late.

The stock's high valuation allows the company to raise capital at favorable prices and buy bitcoin. Bitcoin rises, the stock rises further, Executive Chairman Michael Saylor and team buy even more bitcoin. And so on.

"If you want to speculate that bitcoin is heading higher, buy some," concluded Weil. "To go long MicroStrategy’s stock is to wager that bizarrely inefficient markets will become even more so."

MicroStrategy last reported adding 243,305 bitcoin to its holdings in June, at an average price of $37,617. The company said at the time that it had sold $1.07 billion in Class A common stock.

MicroStrategy began adding bitcoin to its balance sheet in August 2020, and had purchased a total of 430,757 BTC, at an average price of $27,713, through June.

The company said in April that it had applied for an exchange-traded fund (ETF) that would hold bitcoin and other digital assets, in a move that would mark the entry of a major crypto miner into the U.S. ETF market.

Shares of MicroStrategy are up more than 3,500% since Saylor began buying bitcoin in August 2020.