Attention to the news of MicroStrategy: the volatility of Bitcoin brings the MSTR stock sharply lower

From the latest market news, it is clear that the business intelligence company MicroStrategy is getting serious with Bitcoin.

The company of CEO Michael Saylor is accumulating the virtual asset at a rapid pace, with the latest recent operation marking the purchase of another 55,000 BTC.

In any case, the MSTR stock, closely related to Bitcoin, presents some major weaknesses. In the last 4 days, coinciding with the pullback of the crypto, the stock of MicroStrategy has fallen by 34%, marking the largest drop in its history

Are we facing an opportunity for profit or a big warning bell?

MicroStrategy news: the company acquires another 55,000 BTC

According to the news of the week, MicroStrategy has purchased the record amount of 55,000 BTC, spending a total of 5.4 billion dollars.

The money was raised from a private sale of convertible senior notes, from which investors provided liquidity to the company.

In practice, MicroStrategy issues bonds to purchase BTC, increasing the value per share by diluting the stakes.

With the latest purchase, made with a cost basis of 97,862 dollars per BTC, the company’s total haul has risen to 386,700 coins.

We are talking about an asset of approximately 36.18 billion dollars, currently with a profit of about 14.2 billion dollars (+64.5% on the investment).

The latest news has led MicroStrategy to offer its shareholders a return in Bitcoin of 35.2% on a QTD basis and 59.3% on a YTD basis.

The software development company based in Virginia has been following a DCA investment strategy on Bitcoin since September 2020 under the guidance of CEO Michael Saylor.

Whenever the appropriate cash conditions arise, MicroStrategy adds new Bitcoin to its basket, gradually increasing its dominance.

At this moment, according to the data from BitcoinTreasuries, MicroStrategy is the largest publicly traded company for holding BTC.

The capitalization of the stock MSTR is 79.47 billion dollars, with an enterprise value estimated at nearly 86 billion dollars.

The drop in Bitcoin prices drags down MSTR stock: -37% in 4 days

Despite the various successful operations carried out by MicroStrategy, the MSTR stock is experiencing one of the heaviest price drops in its history.

From the top on Thursday, November 21, to the bottom of yesterday, the stock lost about 37% of its value, seeing over 30 billion in market capitalization evaporate.

The prices of MSTR went from 543 dollars down to touch with a spike the minimum value of 338 dollars in the Tuesday session Nasdaq.

This is an enormous drawdown, which must be correlated with the negative price action recorded by the underlying Bitcoin in the same period.

In recent days, BTC has also experienced a downward price trend, which, however, stops at a decrease of only 8%.

The stumble of MicroStrategy’s stock in the market raises questions about its positioning as a leveraged investment vehicle in Bitcoin.

We will see in the coming days if it will be able to rise again, recovering percentage points, or if the bloodbath will continue towards new bear horizons.

Indicatively, we expect a recovery, especially in anticipation of Thursday, November 28, Thanksgiving Day in USA, which historically brings prosperity to the stock sector.

A quick return to the 400 dollar area for MSTR is desirable if aiming for the return of the bull phase, currently interrupted.

Regarding the news of the loss of capitalization of MicroStrategy, Kobeissi Letter, a company operating in the global financial markets sector, has commented.

These are the words used to comment on the event:

“WOW…The MicroStrategy stock, MSTR, has just dropped by a HUGE -35% from the peak recorded on November 21. That’s about 30 BILLION $ of market capitalization wiped out in 4 trading days.”

Attention to the future volatility of MicroStrategy’s stock: leveraged Bitcoin trading

The strong volatile component of MicroStrategy even surpasses that of Bitcoin, which is known to the public for its wide market fluctuations.

This detail is in some ways normal if we consider that MSTR represents an asset whose performance derives from that of the cryptocurrency.

Given its ambitious business model, investing in MicroStrategy means making a leveraged bet on the price of Bitcoin.

In fact, in the last year Bitcoin has risen by 146% while MicroStrategy has risen by over 599%.

Although these may appeal to a wide range of investors, it should be remembered that MicroStrategy presents the same disruptive strength even in a bear market.

The 35% drop in the last 4 days of the stock is the most significant representation of the risks that one may encounter when investing in this product.

As noted by the Italian trader and crypto influencer “Marco Gallazzi,” the appeal of MicroStrategy as an investment could diminish in certain contexts.

The model with which the company raises funds to invest in Bitcoin is somewhat reminiscent of the modus operandi of pyramid schemes, where the new funds are used to pay the old shareholders.

If the price of MSTR shares does not increase enough to attract public attention, the company might struggle to raise new funds.

Furthermore, the excessive dilution of shares could have a negative effect on shareholders’ rights, in case the issuance of new shares exceeds the pace of buy on BTC.

Finally, as it is essential to observe, the uniqueness of MicroStrategy could diminish if another big corporate initiated a similar exposure strategy on Bitcoin.

At the moment, we must still acknowledge that MicroStrategy as a company appears to be in excellent financial condition. 

As of now, there are no major warning signs, but the cards could be overturned in a short time if the market outlook were to change.