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MicroStrategy shares fell 16% to $397.28 Thursday, following statements from influential investment firm Citron Research that it placed a short position against the company while maintaining a long position in Bitcoin.
The disclosure reveals mounting concerns about the company’s stock being overvalued due to what some perceive as an overly excessive company valuation. Citron Research claimed Bitcoin investing has been "easier than ever," citing ETFs and stocks available on trading platforms Coinbase and Robinhood.
Citron, which notably backed MicroStrategy in 2020 as "the best way to play Bitcoin," argued the company's valuation had become "completely detached" from Bitcoin fundamentals despite the alpha crypto approaching $100,000 following a three-week runup in new all-time highs.
Citron and MicroStrategy did not immediately return Decrypt's requests for comment.
The decline, which erased roughly $20 billion in market value, marked a dramatic reversal from early trading when the stock hit an intraday record of $543.
MicroStrategy has since emerged as the second most actively traded stock on the Nasdaq by dollar volume, trailing Nvidia, according to Eric Balchunas, senior ETF analyst at Bloomberg.
The analyst also claimed that it's been years since a stock has traded this much, claiming it "may have actually been $GME to last do it."
For context, GME is the GameStop stock, which became known as a "meme stock" during the trading frenzy in early 2021, triggering dramatic fluctuations in stock price. Keith Gill, also known as Roaring Kitty, the influential trader known for being a GME bull, has been on and off Twitter—most recently to dump another stock, CHWY.
Solana meme coins inspired by GME and Roaring Kitty have also seen record highs earlier this year, though those later dwindled as the latter took off on another Twitter hiatus.
The "Trump trade" fever seems to have cooled off — more than doubling and outpacing Bitcoin's 40% gain — but expectations of a crypto-friendly regulatory regime in the U.S. have prompted companies like MicroStrategy to leverage its position and buy up more Bitcoin.
MicroStrategy's aggressive capital raising strategy has also intensified scrutiny of its valuation premium. Adjusted for debt and revenue, the company trades at roughly 3.5 times the value of its Bitcoin holdings.
It also completed a $3 billion convertible debt offering on Thursday, upsized from an initial target of $1.75 billion due to strong investor demand. These zero-coupon notes due 2029 carry a conversion rate of 1.4872 shares per $1,000 principal, equivalent to roughly $672 per share—a 55% premium over recent trading prices.
The latest debt raise follows $6.6 billion in stock sales earlier this month, with all proceeds already earmarked for Bitcoin purchases. This forms part of MicroStrategy's ambitious "21/21" strategy unveiled in October, which aims to raise $42 billion through equal amounts of stock and bond sales through 2027 to expand its Bitcoin holdings.
MicroStrategy operates like a leveraged Bitcoin amplifier, using convertible debt to buy more Bitcoin while its stock trades at a premium during bull markets, an analysis from media outlet Sherwood explains. This creates a self-reinforcing cycle where rising Bitcoin prices boost MSTR's stock, allowing it to raise capital to acquire even more Bitcoin cheaply.
However, this strategy carries significant risk if Bitcoin enters an extended bear market that pushes MSTR's stock below the conversion prices of its outstanding notes, which total over $4.8 billion.
In such a scenario, MicroStrategy might be forced to sell the Bitcoin it holds to repay creditors since it holds minimal cash reserves (estimated to be about $46.3 million), potentially triggering a negative feedback loop where its Bitcoin selloff could drive further price declines and force more liquidations.
Currently holding 331,200 BTC acquired at an average price of $49,874 per coin, MicroStrategy has positioned itself as "the world's first and largest Bitcoin Treasury Company."
The total value of its Bitcoin holdings stands at approximately $32 billion. In comparison, the company's market capitalization has swelled to around $107 billion—a dramatic increase compared to late 2023 when the stock traded near parity with its Bitcoin holdings.
The company's year-to-date performance remains strong despite Thursday's decline, with the stock up nearly 500% compared to Bitcoin's 110% gain and the S&P 500's 25% advance.
However, as Citron's short position implies, maintaining such outperformance may prove challenging as investors weigh the merits of MicroStrategy's premium against more direct Bitcoin investment vehicles.
Edited by Sebastian Sinclair
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