Yesterday, the well-known short-seller Citron posted on social media platform X that they were shorting $MicroStrategy(MSTR)$ , the strongest "shadow stock" of Bitcoin.
This news caused MSTR to plunge 16% in a single day, triggering panic among investors.
MicroStrategy: Bitcoin’s Biggest Proxy
MicroStrategy, a company focused on business intelligence, data analytics, and cloud computing, had struggled with stagnant stock prices for years before 2020. That was when Michael Saylor made a bold move, announcing that the company would begin accumulating Bitcoin as a strategic reserve. Since then, MicroStrategy has bought a massive amount of Bitcoin.
As of now, MicroStrategy holds about 331,200 Bitcoins, with a total cost of around $16.5 billion, averaging $49,874 per Bitcoin. According to Bitcoin Treasuries, MicroStrategy is the publicly traded company holding the most Bitcoin — far more than Bitcoin miners like Marathon and Riot, or even top crypto exchanges like Coinbase.
This has made MSTR the go-to "shadow stock" for Bitcoin, with investors treating it as a Bitcoin amplifier and betting heavily on its price movements.
Valuation vs. Bitcoin’s Price
Looking at the fundamentals, MSTR’s market cap is nearly three times the value of the Bitcoin it holds. Investors are paying about $250,000 per Bitcoin through MSTR stock, while the market price of Bitcoin is under $100,000.
Meanwhile, MicroStrategy’s core business has struggled to grow. Its quarterly revenue has been stuck at around $100 million.
So yes, there is definitely a bubble, but shorting MSTR might not be the best move.
The Risk of Shorting MSTR
Earlier this year, Kerrisdale Capital made a similar call to Citron, recommending shorting MSTR while going long on Bitcoin. Back then, Bitcoin was around $70,000, and MSTR was nearing $200.
In the months that followed, Bitcoin fluctuated, and MSTR adjusted with it. Those who shorted MSTR were able to make a profit, but if they had held onto those shorts until now, they’d be feeling some serious pain.
MSTR’s stock has a strong correlation with Bitcoin, currently sitting around 0.8. So if Bitcoin continues its upward momentum, the upside for MSTR could still be huge.
A Wild Ride Ahead?
With Bitcoin recently breaking $99,000, MSTR’s stock surged more than 12% in after-hours trading, brushing off Citron’s short-sell call.
Sure, there’s always chaos behind the mania, but who knows where the top is before the bell rings?
If you’re bullish on Bitcoin, you might want to go directly for Bitcoin or a Bitcoin ETF. MSTR can amplify Bitcoin’s moves, but when it crashes, it can do so much harder. If you’re not ready for that kind of volatility, beware!
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