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The Impact of Bitcoin Price Crunch on MicroStrategy Stock
Bitcoin’s recent price decline has had significant consequences for various crypto-related stocks, with MicroStrategy (MSTR) being among the most severely affected. The company, known as the largest corporate holder of Bitcoin, witnessed its stock plummet to a mere $1,018 on Wednesday, marking a drastic drop from its peak value of $1,919 in March.
Concurrently, Bitcoin itself experienced a decline, falling to approximately $56,800 within the same timeframe, a 23% reduction from its record high of $73,737 on March 14. Despite this downturn, Bitcoin has since regained some ground, climbing back up to over $61,000 by the end of the week.
MSTR Stock Premium Adjustment
While the decline in MicroStrategy’s stock price may have been disheartening for shareholders, it also signifies a necessary correction for the company. In recent months, the stock had been trading at a substantial premium compared to its actual Bitcoin holdings. As of Wednesday, the premium (excluding debts) had decreased to +67% of its BTC value, a significant drop from the +175% premium noted in late March.
Markus Thielen, the founder of 10x Research, expressed his belief that MicroStrategy’s stock is now approaching a more reasonable valuation. In March, Thielen’s firm had argued that MSTR should ideally be trading around $1,000 per share, suggesting that potential investors might be better off focusing on Bitcoin itself.
MicroStrategy’s Market Cap and Bitcoin Holdings
As of Friday, MicroStrategy’s market capitalization stood at $21.37 billion, with its balance sheet reflecting 214,400 BTC valued at $13.26 billion based on prevailing market rates. Given the company’s substantial investments in Bitcoin, it has been likened to a de facto Bitcoin spot exchange-traded fund (ETF), albeit without the market-making and redemption mechanisms typically associated with traditional ETFs.
Moreover, MicroStrategy’s ability to leverage strategies such as issuing debt to acquire more BTC or selling stock at a premium to bolster its BTC per share ratio adds another layer of complexity to its valuation dynamics.
Assessment of MSTR Premium
While some critics have contended that MicroStrategy’s stock premium was unsustainable and overdue for a correction, the company’s supporters maintain that the premium reflects its potential to expand its BTC holdings per share in the future. This divergence in opinions underscores the intricate interplay between market sentiment, underlying asset value, and future growth prospects.
James Butterfill, CoinShares’ Head of Research, highlighted that MSTR essentially functions as a leveraged play on Bitcoin prices, often mirroring movements of approximately 1.5 times the Bitcoin price. He emphasized that, in the current landscape, considerations surrounding monetary policy and Bitcoin’s trajectory hold more weight than traditional valuation metrics.
Butterfill further suggested that Bitcoin’s recent market reaction may have been exaggerated in response to perceived hawkish signals from the Federal Open Market Committee (FOMC) but is now rebounding following a dovish monetary policy stance from the central bank. This shift in stance is expected to provide continued support for both MicroStrategy and Bitcoin prices, potentially signaling a turnaround from recent market turbulence.
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