Investment manager Kerrisdale Capital recently stated that shares of MicroStrategy (MSTR), the largest corporate holder of Bitcoin, are trading at a significant premium to the actual value of the company’s Bitcoin holdings. The firm believes that the stock is overvalued and due for a significant pullback. MicroStrategy’s stock price has surged in recent months along with the price of Bitcoin, but Kerrisdale Capital argues that the current premium is unjustifiable. At the time of the report, MSTR’s price was over $1900 per share, implying a Bitcoin price of $177,000 per coin, much higher than the actual market price.
Since MicroStrategy’s balance sheet is heavily weighted towards Bitcoin, investors have often viewed the company as a Bitcoin spot ETF. However, with the recent launch of the United States’ first Bitcoin spot ETFs, MicroStrategy now faces increased competition in this space. The company’s executive chairman, Michael Saylor, has likened MicroStrategy to a Bitcoin ETF with added benefits like moderate leverage and no management fees. Despite its advantages, the company is no longer a unique way to gain exposure to Bitcoin, as other ETFs have accumulated more Bitcoin than MicroStrategy.
After Kerrisdale’s report was released, MSTR shares dropped by 8% to $1,761. This decline occurred while Bitcoin prices continued to rise, trading at $70,600. Additionally, Bitcoin mining company Marathon Digital saw a 4% increase in its stock price during the same period. Despite the drop in MSTR shares, the stock has significantly outperformed Bitcoin year-to-date, with gains of 158% compared to Bitcoin’s 66% increase. MicroStrategy’s Bitcoin holdings, which have more than doubled in value from their average purchase price, are currently valued at over $15 billion.
Kerrisdale Capital believes that the premium on MSTR shares is unsustainable and forecasts a potential 50% downside in the stock relative to Bitcoin if the premium were to return to a historically consistent level. The firm argues that the current premium of 2.6x is too high and should be closer to 1.3x. This adjustment would indicate a significant decrease in MSTR’s value compared to Bitcoin. Despite the potential downside, MicroStrategy continues to hold a significant amount of Bitcoin, positioning the company as a major player in the cryptocurrency market with substantial holdings.
In conclusion, Kerrisdale Capital’s report raises concerns about the premium on MicroStrategy’s stock and the company’s valuation relative to its Bitcoin holdings. The firm believes that the current premium on MSTR shares is unjustifiable and forecasts a significant pullback in the stock price. Despite the recent drop in MSTR shares, MicroStrategy continues to hold a substantial amount of Bitcoin, making it a key player in the cryptocurrency market. However, with increasing competition from Bitcoin ETFs, the company may face challenges in maintaining its position as a unique way to invest in Bitcoin. Investors will need to closely monitor developments in the cryptocurrency market and assess the potential impact on MicroStrategy’s stock price going forward.
