Up 496%, MicroStrategy Stock May Pop By Selling Shares To Buy Bitcoin

MicroStrategy — the provider of analytical software — has since 2020 transformed itself into a way for traders to bet on bitcoin, according to Yahoo! Finance. With MicroStrategy’s recent addition to the Nasdaq 100, the company’s stock has soared 496% so far in 2024.

Here are three reasons MicroStrategy’s stock could keep rising:

• The company’s bitcoin buying strategy values each share of the company’s stock at 2.5 times the value of its bitcoin holdings, according to Bloomberg.
• The incoming president is likely to lighten regulatory scrutiny of cryptocurrency — sending Bitcoin price skyward.
• Rising short interest in MicroStrategy could put upward pressure on the stock price as their bets against the company encourage brokers to demand they buy stock to cover their money-losing short bets.

MicroStrategy’s Evolving Business Strategy

MicroStrategy stock has twice enjoyed meteoric rises.

The first time was during the dot-com boom. That’s when the then-maker of analytical software went public in June 1998 at a split-adjusted $10.44 and soared at a whopping average annual rate of 40,387% to peak at $313 on March 10, 2020 when the Nasdaq plunged as the dot-com bubble burst.

When I wrote about MicroStrategy in May 2011, I saw the potential for the stock to rise — based on the possibility IBM might acquire the company, noted InvestorPlace. two months later the stock had risen another 24%.

Ironically, that was around the time — June 2011 that Bitcoin wallet Mt.Gox was hacked — sending the cryptocurrency down to “pennies on the dollar,” as I wrote in a June 2022 Forbes post in which I expressed regret at deciding not to bet $1,000 on 20,000 Bitcoin. By not acting, I missed out on a $2.1 billion fortune — given the cryptocurrency’s current price of $107,222.

By 2020, MicroStrategy had decided to plunge in to buying Bitcoin. That is when the company adopted the cryptocurrency as “its primary Treasury reserve asset, and has been investing in the cryptocurrency using equity, debt financing, and its own cash flows,” noted Yahoo! Finance.

Since August 11, 2020 when the company announced it would buy $250 million worth of Bitcoin, according to Coin Market, MicroStrategy’s stock has again soared — rising from about $14 to its current $408.50 at an average annual rate of 117,883%.

Since the 2024 presidential election, MicroStrategy has increased the magnitude of its bet — acquiring about 40% of its Bitcoin position in the past 40 days, wrote Bernstein analysts on December 16 as Yahoo! Finance featured.

On Monday, a MicroStrategy filing revealed had acquired an additional 15,350 bitcoins for $1.5 billion — and now holds about 440,000 bitcoins. “We pride ourselves on being at the forefront of institutional bitcoin adoption,” MicroStrategy CFO Andrew Kang said in the company’s October 30 earnings call.

Is MicroStrategy’s Bitcoin Buying Spree A Financial Perpetual Motion Machine?

MicroStrategy stock could keep rising as it sells stock or otherwise finances the purchase of more Bitcoin. The reason the company might keep doing this is the premium investors accord its stock price for buying the cryptocurrency.

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More specifically, comparing the company’s $119 billion stock market capitalization to its $47 billion worth of Bitcoin, Bloomberg estimates every dollar MicroStrategy spends on Bitcoin adds $2.5o to the company’s market capitalization.

Is there a limit to how much MicroStrategy could sell its rising stock to buy more Bitcoin — sending up its stock price and the cryptocurrency’s price? In theory, the stock’s 150% premium over the value of the company’s Bitcoin holdings should converge to zero.

However, the premium seems to be holding roughly stable since MicroStrategy began buying in the wake of the election results, noted Bloomberg.

Incoming Administration To Boost Cryptocurrencies

Since Donald Trump’s victory, the price of Bitcoin has soared more than 50% — hitting a new record on December 16. Earlier in December, he said he would replace SEC commissioner Gary Gensler — seen as hostile to cryptocurrency — with the crypto-friendly Paul Atkins. He also announced his intention of appointing David Sacks, former PayPal CEO, as “crypto czar,” noted Yahoo! Finance.

MicroStrategy’s Rising Short Interest

Short interest in MicroStrategy stock has increased in the last four years. On December 15, 2020 MicroStrategy short-interest was $288 million — which has since increased at a 20% average annual rate to $8.9 billion at the end of November 2024, according to MarketBeat.

One short seller said it had taken a new bet against MicroStrategy stock. Shares have “completely detached from BTC fundamentals,” noted Citron Research in a November report featured by Yahoo! Finance.

If history is any guide, short-sellers will be right in the long-run. But they could lose a fortune before that happens.