Zinger Key Points
- MicroStrategy has fallen by 20.34% month-to-date and Bitcoin was down 4.34% in the same period.
- It has returned 342.15% on a year-to-date basis, compared to the Nasdaq Composite’s return of 31.97%.
- Get Monthly Picks of Market's Fastest Movers
MicroStrategy Inc. MSTR stock has seemingly diverged with respect to the movement in Bitcoin BTC/USD prices, this trend has been pronounced since the company started issuing more 0% convertible notes in November.
What Happened: MicroStrategy has fallen by 20.34% month-to-date about five times more than the Bitcoin prices, which was down just 4.34% in the same period.
According to an X post by the Kobeissi Letter, the gap between the two assets is widening.
MicroStrategy is the only publicly listed company holding the highest Bitcoin BTC/USD reserves, representing 2.116% of the total 21 million supply, at a cost of $41.11 billion. The company has also raised $20 billion of debt in 2024 to buy more coins.
Another post in the thread said, “For most of the year, the correlation between MicroStrategy and Bitcoin was incredibly strong. However, something began to shift over the last month, particularly as the company took on tons of debt. Then, MSTR suggested raising the authorized share count by 10 billion.”
According to Kobeissi, there shouldn’t exist such a divergence between the performance of the two assets as MSTR is considered a leveraged play on BTC. However, citing an example of a triple-levered S&P 500 ETF, Kobeissi explains how the movement in such assets works.
According to Kobeissi, the MSTR model is to first, “Borrow money through 0% convertible notes,” and “Buy Bitcoin and drive price higher.” It added that MicroStrategy then sells new shares at a premium and uses the proceeds to buy more Bitcoin – and this process repeats.
Why It Matters: Earlier on Dec. 23, MicroStrategy floated a proposal to increase the number of authorized shares of class A common stock, par value $0.001 per share, from 330,000,000 shares to 10,330,000,000 shares and preferred stock from 5,000,000 shares to 1,005,000,000 shares.
Kobeissi said, “If the plan is approved, bears will say that this is a highly dilutive move for existing shareholders. However, if it is not approved, then MicroStrategy will be unable to continue buying Bitcoin on leverage.”
However, the odds of the share count approval being raised are high, since the company’s co-founder Michael Saylor himself currently holds 46.8% of the voting power.
Sharp deviations have also been witnessed in the exchange-traded funds tracking MicroStrategy, likely stemming from the exposure to its volatile swaps and options.
The T-Rex 2X Long MSTR Daily Target ETF MSTU launched on Sept. 18, this year, and Defiance Daily Target 2x Long MSTR ETF MSTX launched on Aug. 14, are the two U.S.-listed leveraged ETFs which aim to provide twice the daily returns of MicroStrategy. These have lately diverged too as it acts as a levered on-levered play
Price Action: Shares of MicroStrategy were down over 8.19% on Monday and it fell further by 3.09% to $293.59 apiece in after-hours. The stock has returned 342.15% on a year-to-date basis, compared to the Nasdaq Composite's return of 31.97% in the same period, according to Benzinga Pro data.
About 12 analysts tracked by Benzinga have a consensus ‘buy' rating on the stock with a price target of $449.5 per share.
The three most recent analyst ratings between Bernstein, TD Cowen, and Barclays imply an 86.20% upside for MSTR.
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