Core MicroStrategy Short Thesis: Is The Tide Turning ?
Unmasking MicroStrategy: When Hype Meets Hard Reality
In March 2024, Kerrisdale Capital reported they are long Bitcoin (BTC) and short MicroStrategy (MSTR). Their rationale is MSTR trades at a significant premium (~2.6x) to the net asset value (NAV) of its Bitcoin holdings, implying an unrealistic Bitcoin price of $177,000. The historical average premium is 1.3x, suggesting a likely mean reversion and potential downside.
MSTR’s stock no longer offers unique value as a proxy for Bitcoin, given the availability of low-cost Bitcoin investment vehicles (e.g., BlackRock’s IBIT, Fidelity’s FBTC).
Long Position on Bitcoin ETFs (IBIT, FBTC): They offer direct Bitcoin exposure without the excessive premium. Short Position on MSTR: The current premium to NAV is unsustainable and historically short-lived.
Smart investors are turning to efficient, low-cost ETFs for exposure. The FOMO-fueled premium of MSTR cannot last forever. Bitcoin thrives on trustless systems; MSTR does not.
Other considerations:
MSTR’s Bitcoin accumulation strategy heavily relies on leverage, which amplifies risks.
The company’s software business, once its core, now contributes minimally (~3% of total enterprise value).
High volatility allows MicroStrategy to issue 0% coupon bonds, benefiting bondholders while exposing shareholders to greater dilution risks.
Shareholders are heavily diluted as MicroStrategy continuously issues equity to support its Bitcoin strategy and collateralize bonds.
CEO Michael Saylor’s claims, such as "making $500 million a day," involve speculative and misleading financial assumptions.
Frequent insider selling underscores skepticism about long-term equity value.
Historically, MSTR has exploited premium spikes (e.g., 2021) by issuing convertible debt and equity, but this has diluted shareholders.
Despite growing Bitcoin holdings, Bitcoin-per-share metrics have stagnated due to dilution.
SCC views: Bitcoin investors are better served by direct or ETF exposure rather than MSTR shares. The stock trades at a significant premium to its Bitcoin holdings (3-4x of NAV), driven by speculative narratives and fear of missing out (FOMO). If volatility drops, the scheme unravels, potentially wiping out equity value while bondholders claim the company’s Bitcoin assets. The entire scheme relies on maintaining high volatility in MicroStrategy shares as Warren buffet wisely pointed out “Only when the tide goes out do you discover who's been swimming naked. The question isn’t if this scheme will unravel—it’s when.
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Risk Disclosure: This content is for informational purposes only and does not constitute investment advice. Investing carries risk, including potential loss of principal. Always consult with a professional financial advisor to evaluate your risk tolerance and financial goals before making any investment decisions.