MicroStrategy Shares Drop 8% After Latest Bitcoin Purchase, Raising Concerns Over Leverage

MicroStrategy’s stock (MSTR) experienced a significant dip of over 8% following the company’s recent $209 million Bitcoin acquisition, triggering concerns among market observers about the firm’s leveraged strategy.

The business intelligence firm, led by Michael Saylor, announced the Bitcoin purchase just before the trading day began on the Nasdaq stock exchange, with the opening price at 2:30 pm UTC. Within the first hour of trading, MicroStrategy’s shares dropped by 5.3%, falling from $318.89 to $302.09. Although the stock partially recovered during the trading session, it ultimately closed the day at $302.96. The downward trend continued after hours, with the stock falling another 3.19%, bringing the after-hours price to $293.59.

A Continuous Bitcoin Buying Spree

MicroStrategy’s latest Bitcoin acquisition marks its eighth consecutive week of purchasing Bitcoin, a streak that began on October 31. Over this period, the company has accumulated 194,180 BTC, further bolstering its already substantial Bitcoin holdings. However, the funding for this most recent purchase came from the sale of 592,987 shares, which has raised concerns about the company’s increasing reliance on issuing more debt or equity to fund its Bitcoin buying spree.

Concerns Over Leverage

Market analysts are expressing growing unease about MicroStrategy’s strategy, especially regarding the company’s plans to increase its authorized shares by 10 billion. The Kobeissi Letter, a trading resource, highlighted concerns that the firm’s use of convertible notes and debt issuances has heavily leveraged its position. The potential approval of the share increase could dilute existing shareholders significantly, raising the total number of shares from 330 million to an astounding 10.33 billion. This would place MicroStrategy in a “lose-lose” situation, according to Kobeissi.

MicroStrategy’s stock has fallen 20.18% in the past 30 days, though it remains up 342.15% year-to-date, reflecting the continued upward momentum of Bitcoin throughout 2024. Despite this volatility, some analysts believe that MicroStrategy’s strategy could pay off in the long term, especially if Bitcoin’s price continues to rise.

A Mixed Outlook

Felix Hartmann, founder of Hartmann Capital, shared his thoughts on MicroStrategy’s future, suggesting that while the company’s stock price could eventually implode, short sellers betting against both Bitcoin and MicroStrategy might be caught off guard. He predicts that within five years, MicroStrategy could rise to become one of the top five companies by market capitalization. However, he also acknowledges the risks involved, noting that the company’s success will ultimately depend on the performance of Bitcoin.

Joe Burnett, head of market research at Unchained, referred to MicroStrategy’s strategy as “hyperbitcoinization,” explaining that the company’s premium stock price allows it to sell shares above its net asset value (NAV), buy more Bitcoin, and further reduce its leverage. This strategy, according to Burnett, creates a feedback loop that continually increases Bitcoin holdings per share.

Nasdaq-100 Inclusion

MicroStrategy’s strategy appears to be gaining recognition within the broader financial market. On December 23, the company was added to the prestigious Nasdaq-100 index, which includes the 100 largest non-financial stocks listed on the Nasdaq stock exchange. This inclusion places MicroStrategy alongside prominent firms like Palantir Technologies and Axon Enterprise, marking a significant milestone for the company.

As MicroStrategy continues to make bold moves in its Bitcoin strategy, the firm’s future will hinge on its ability to manage leverage while capitalizing on Bitcoin’s long-term growth. While some analysts are bullish on the company’s potential, others remain cautious, acknowledging the risks inherent in its aggressive “hyperbitcoinization” approach.