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Investment Manager Shorts MicroStrategy, Calls Bitcoin Premium “Unjustifiable” — Is There Trouble Ahead?

On March 28, investment manager Kerrisdale Capital expressed its view that shares of MicroStrategy (MSTR) are trading at a premium that cannot be justified based on the company’s actual Bitcoin holdings. MicroStrategy holds the title of being the largest corporate holder of Bitcoin globally.

The price of MSTR shares has surged significantly over the last couple of months, prompting concerns among many analysts who anticipate a significant downward correction in the stock.

The MicroStrategy Bitcoin Premium

“We hold a bullish position on Bitcoin and have adopted a bearish stance on MicroStrategy shares… MicroStrategy’s shares have experienced a significant surge alongside the recent uptrend in Bitcoin’s price, yet, as is typical in the crypto realm, exuberance has overshadowed rationality,” the firm stated.

At the time of the report’s release, MSTR’s share price exceeded $1900. Kerrisdale Capital noted that based on the company’s Bitcoin holdings per share, this valuation would suggest a current Bitcoin price of $177,000 per coin – a figure two and a half times higher than its actual market value.

Given that MicroStrategy’s balance sheet is predominantly composed of Bitcoin (BTC), investors have often appraised the company as if it were a Bitcoin spot exchange-traded fund (ETF). Michael Saylor, the company’s executive chairman, has likened MicroStrategy to a Bitcoin ETF, highlighting its advantages such as modest leverage and absence of management fees.

Starting in January, the company encountered heightened competition from various asset managers who launched the United States’ inaugural actual Bitcoin spot ETFs. Notably, BlackRock’s iShares Bitcoin Trust (IBIT) has already amassed a greater quantity of Bitcoin compared to MicroStrategy.

“The era where MicroStrategy shares offered a rare and distinctive pathway to Bitcoin exposure is now a thing of the past,” remarked Kerrisdale.

Despite any advantages the firm may have over conventional ETFs, such as the ability to increase its Bitcoin holdings through share dilution, these are eclipsed by the significant premium it commands.

“Assuming the current premium of 2.6x reverts to a more historically consistent 1.3x, this implies a 50% downside potential for MSTR relative to Bitcoin,” the firm stated.

MSTR Price Tanks

Following the release of Kerrisdale’s report, MSTR shares experienced an 8% decline on the day, falling to $1,761. Conversely, Bitcoin witnessed a 1.7% increase, reaching $70,600, while Bitcoin mining company Marathon Digital saw a 4% rise to $24.04.

Year-to-date, MSTR continues to significantly outperform BTC, with both assets showcasing gains of 158% and 66%, respectively.

As per data from saylortracker.com, MicroStrategy’s Bitcoin holdings are presently valued at over $15 billion, reflecting a doubling in value from their average purchase price.

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