Short-Seller Andrew Left Slams MicroStrategy. Is Michael Saylor's Bitcoin Stock in Trouble?

MicroStrategy's Bitcoin Strategy - MicroStrategy has become one of the most valuable stocks on the Nasdaq by pursuing a simple strategy: buying Bitcoin [1] - The stock has soared alongside Bitcoin's gains this year, driven by the broader bull market, the launch of spot Bitcoin ETFs, and optimism about crypto-friendly policies under a potential new Trump administration [2] - MicroStrategy is unique in the stock market as it essentially acts like a leveraged Bitcoin ETF, with CEO Michael Saylor being one of the biggest evangelists for the digital coin [2] - As of the end of Q3 2023, MicroStrategy held 252,220 bitcoins [2] Valuation and Financials - MicroStrategy's market cap was $94.8 billion as of Nov 22, 2023, with the company now identifying itself as a Bitcoin treasury company [3] - Based on its market cap and Bitcoin holdings, the company is valued at $375,864 per token, nearly four times the price of Bitcoin ($98,807 at the time of writing) [3] - The value of Bitcoin held on MicroStrategy's balance sheet is $22.4 billion [3] - The company is sitting on a gain of $49,441 per Bitcoin, with an average purchase price of $39,266, totaling $12.5 billion in gains from its Bitcoin purchases [3] - MicroStrategy has $4.2 billion in long-term debt as it continues to borrow money and sell stock to buy Bitcoin [3] Risks and Volatility - MicroStrategy trades like a leveraged Bitcoin ETF due to its consistent increase in Bitcoin exposure, making it an outsized bet on Bitcoin's price movement [4] - The company's valuation of Bitcoin holdings could be seen as a price target for the cryptocurrency, as Bitcoin would need to reach that level for MicroStrategy's share price to make sense [4] - If Bitcoin's price collapses, MicroStrategy could become insolvent, though the crypto would have to fall sharply from its current price for that to happen [4] - A Bitcoin crash could lead to a loss of investor confidence in MicroStrategy, potentially causing the stock to be abandoned [4] Market Sentiment and Short-Selling - Citron Research, a well-known short-seller, has reversed its position on MicroStrategy, claiming the company is overvalued and its model is unsustainable [2] - Citron argues that MicroStrategy's value has completely detached from Bitcoin's performance, though it remains bullish on Bitcoin itself [2] - MicroStrategy's stock plunged 16% last Thursday when Citron published its short report [2] Investment Considerations - MicroStrategy's stock performance is heavily tied to Bitcoin's price movements, making it difficult to predict without considering Bitcoin's volatility [5] - Bitcoin's recent rise is partly attributed to the Trump administration's plans to embrace it, but the election and inauguration could lead to a pullback in the digital token [5] - Bitcoin is a high-risk asset with no fundamentals, making it prone to speculative bubbles [5] - Holding MicroStrategy stock may make sense for those bullish on Bitcoin, as it is likely to outperform Bitcoin if the cryptocurrency's price continues to rise [5] - However, if Bitcoin starts to decline, MicroStrategy investors should be prepared for the stock to crash [5]