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Join WhatsApp channelMicroStrategy, the leading Bitcoin-holding corporation, experienced a sharp 16.2% decline in stock value on Thursday despite Bitcoin (BTC) surging to a new record just shy of $100,000. At its session low, the stock was down over 20%, marking a significant pullback in an otherwise meteoric rise. For context, MicroStrategy shares remain more than five times higher year-to-date and nearly eightfold above levels from the same time last year.
A Valuation Detached from Fundamentals?
Citron Research’s Andrew Left, a former advocate for using MicroStrategy as a Bitcoin proxy, criticized the stock’s valuation on Thursday, stating it had “completely detached from Bitcoin fundamentals.” While Left maintains a bullish stance on Bitcoin, he disclosed hedging his position by shorting MicroStrategy, citing concerns over its parabolic growth.
MicroStrategy’s market capitalization briefly exceeded $100 billion earlier in the day—more than three times the $32.5 billion value of its 331,000 Bitcoin holdings at Bitcoin’s $98,000 price. Following the stock’s plunge, its market cap dropped to approximately $80 billion.
A Classic “Parabolic Short”?
Technician Bracco, a popular market analyst on X (formerly Twitter), labeled MicroStrategy a “textbook parabolic short” before markets opened Thursday. He pointed to indicators such as three consecutive days of double-digit gains, large overnight gaps, and extraordinary trading volume. On Wednesday, MicroStrategy’s dollar volume surpassed major names like Nvidia and Tesla, while a leveraged ETF tied to the stock became the fifth most-traded ETF in the market.
The “Flywheel Effect” Behind MicroStrategy’s Growth
Jonathan Weil, writing in The Wall Street Journal, highlighted a self-reinforcing cycle driving MicroStrategy’s valuation:
- The company’s high stock price allows it to raise capital cheaply.
- Raised funds are used to purchase more Bitcoin.
- As Bitcoin rises, so does the stock price, perpetuating the cycle.
Weil questioned the sustainability of this strategy, suggesting that buying Bitcoin directly might be a more rational choice for investors. “To go long MicroStrategy’s stock is to wager that bizarrely inefficient markets will become even more so,” he concluded.
Key Takeaways for Investors
MicroStrategy’s remarkable rally has captured attention, but Thursday’s sharp decline serves as a reminder of the risks tied to extreme valuations. While the company’s Bitcoin-centric strategy has made it a favorite among cryptocurrency enthusiasts, concerns over its detachment from fundamentals are prompting some market participants to tread carefully.
