Investment manager Kerrisdale Capital recently stated that shares of MicroStrategy (MSTR) are trading at a premium that is not justified by the company’s actual Bitcoin holdings. Despite an increase in MSTR’s share price over the past two months, many analysts believe that the stock is due for a significant pullback. Kerrisdale Capital, who is long on Bitcoin and short on MSTR shares, pointed out that the implied Bitcoin price based on MicroStrategy’s Bitcoin holdings per share is currently over $177,000 per coin, which is significantly higher than the actual spot price.
As MicroStrategy’s balance sheet is predominantly comprised of Bitcoin, investors have often valued the company as if it were a Bitcoin spot ETF. The company’s executive chairman, Michael Saylor, has referred to the firm as a Bitcoin ETF with additional perks, such as moderate leverage and no management fees. However, since the beginning of the year, MicroStrategy has faced competition from asset managers launching the United States’ first actual Bitcoin spot ETFs, such as BlackRock’s iShares Bitcoin Trust (IBIT), which has accumulated more Bitcoin than MicroStrategy. Kerrisdale noted that the days when MicroStrategy shares offered a unique way to access Bitcoin are no longer valid, especially considering the significant premium currently attached to the shares.
Following the release of Kerrisdale’s report, MSTR shares experienced an 8% decline to $1,761. In contrast, Bitcoin was trading 1.7% higher at $70,600 on the same day, while Bitcoin mining company Marathon Digital saw a 4% increase in its share price. Despite the drop in MSTR’s share price, the company continues to significantly outperform Bitcoin year-to-date, with gains of 158% and 66% respectively. MicroStrategy’s Bitcoin holdings, valued at over $15 billion according to saylortracker.com, have more than doubled in value since their average purchase price.
Kerrisdale Capital emphasized that the premium on MSTR shares, which currently stands at 2.6 times the spot price of Bitcoin, is unjustifiable and suggests a significant downside risk for investors. The firm suggested that a more historically consistent premium of 1.3 times would imply a 50% decrease in MSTR’s value relative to Bitcoin. MicroStrategy’s ability to dilute shares in order to acquire more BTC and other perceived advantages over traditional ETFs are overshadowed by the excessive premium attached to the shares. Kerrisdale’s position on being short on MSTR and long on Bitcoin reflects their belief that the current valuation of MSTR shares is inflated and not backed by the company’s actual Bitcoin holdings.
The fierce competition from other asset managers offering actual Bitcoin spot ETFs has diminished MicroStrategy’s appeal as a unique way to gain exposure to Bitcoin. As more players enter the market with similar products, MicroStrategy’s competitive advantage has diminished, leading to a reconsideration of the premium attached to MSTR shares. With the significant outperformance of MSTR compared to Bitcoin year-to-date, investors are becoming cautious about the sustainability of this trend and the implications of the inflated premium on MSTR shares. Kerrisdale’s analysis and recommendation to be short on MSTR reflect their assessment of the current market conditions and the discrepancy between the actual Bitcoin holdings of the company and the premium attached to its shares.
