It was announced on Dec. 13 that Bitcoin (CRYPTO:BTC) hoarder MicroStrategy (NASDAQ:MSTR) would be added to the Nasdaq 100 stock index on Dec. 23. Some believed the announcement could send its shares soaring as investors rushed to get ahead of all the buying that would occur from the indexes and exchange-traded funds that follow the Nasdaq 100.
24/7 Wall St. Key Points:
- MicroStrategy (MSTR) has been an incredible investment as it rode the Bitcoin (BTC) wave to new, all-time highs.
- A sharp Bitcoin correction could be coming, with pullbacks in value of 30% not uncommon.
- As MSTR stock has far outpaced the rise in the crypto this year, a realignment of bitcoin pricing could hit shares even harder.
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However, that didn’t happen. Between the announcement date and the actual inclusion trading date, MSTR stock fell 7%. Part of that was due to the Federal Reserve hinting that additional interest rate cuts would be far fewer than many previously believed.
That implication sent Bitcoin prices falling more than 4%. Since hitting its all-time high of $106,490, the value of the cryptocurrency has pulled back some 10%, or $10,592. U.S. Bitcoin ETFs saw a record $680 million in net outflows as the possibility the Fed could act in a more responsible manner next year could serve as a risk-off moment for the alternative currency. It ended a 15-day streak of consecutive inflows.
As Bitcoin has powered MicroStrategy’s valuation to a 61-fold increase over the past five years with its market capitalization growing from $1.6 billion in 2019 to $99 billion today, is MSTR stock facing a massive correction?
Riding the Bitcoin wave
MicroStrategy is on a bitcoin-buying binge. It has raised nearly $20 billion from investors this year to finance the company’s purchase of the cryptocurrency. The ongoing acquisition campaign is what ultimately fueled MSTR’s inclusion in the Nasdaq 100.
CEO Michael Saylor’s stated goal is to transform the nominal data analytics firm into what he calls a “Bitcoin Treasury Company.” He intends to raise as much as $42 billion over the next three years to buy the cryptocurrency.
Just last week MicroStrategy filed with the Securities & Exchange Commission a notice saying that over the six days between Dec. 9 and Dec. 15, it had purchased approximately 15,350 bitcoins for approximately $1.5 billion at an average price of approximately $100,386 each. That gives it a total of 439,000 bitcoin purchased at an average price of $61,725 for a total spent of $27.1 billion.
It was only one year ago, MicroStrategy owned just 189,150, showing just how fast Saylor has been buying what he calls “the most valuable asset in the world.” Bitcoin has more than doubled in value in 2024.
A reversal of fortunes is coming
MicroStrategy stock, however, does not march lockstep with Bitcoin. While it has certainly benefited from the rise in the cryptocurrency, since MSTR hit a record high of almost $474 on Nov. 20, the shares have lost a quarter of their value. Bitcoin, on the other hand, is down just 2.6%.
While MicroStrategy jumped at the open of trading on Dec. 23, likely because of the very index and ETF buying that was anticipated, 2025 could be a lot more volatile than investors have become accustomed to.
There are bearish indicators that suggest the cryptocurrency is due for a major correction beyond the pullback already seen. It is not uncommon for Bitcoin to suffer a 30% drop in value.
MicroStrategy, which kept pace with the crypto’s valuation early on, has pulled far ahead of it this year. The Grayscale Bitcoin ETF Trust (NYSEARCA:GBTC) is up 121% in in 2024, but MicroStrategy is 474% higher. That suggests a sharp downturn in Bitcoin’s price could send MSTR stock careening lower.
Key takeaway
MicroStrategy has turned itself into a bitcoin-backed financial company. It increasingly has bet the house on the cryptocurrency’s fortunes. While it is in the midst of a bull run at the moment, these things don’t go on forever and a reversal of fortunes could very well be on the horizon.
That doesn’t deter CEO Saylor in the slightest. He told the Financial Times, “If bitcoin traded down 90-95 per cent and stayed there, presumably our equity would suffer some dilution, but we still would not sell, or need to sell, our bitcoin.”
Saylor might be willing to hold on through a crypto winter, but that doesn’t mean MicroStrategy investors would have the same fortitude.
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