Kerrisdale Capital said they are short on MicroStrategy Inc. (NASDAQ:MSTR) and long on Bitcoin (BTC-USD).
The investment management firm account explained that crypto trades often get carried away and that MicroStrategy (MSTR) would not be the exception.
The Bitcoin (BTC-USD) price implied in MicroStrategy (MSTR) is over $177,000, “an unjustifiable 2.6x the spot price of Bitcoin (BTC-USD),” Kerrisdale posted on X.com.
In a note, analysts said that the shares of MicroStrategy (MSTR) soared amid a recent rise in the price of the cryptocurrency, but “as is often the case with crypto, things have gotten carried away.”
Also, MicroStrategy (MSTR) does not provide unique access to Bitcoin (BTC-USD), Kerrisdale analysts said. Exchange-traded products and funds like iShares Bitcoin Trust (IBIT) and Fidelity Wise Origin Bitcoin Fund (FBTC) also offer low-fee access to it.
In addition, Bitcoin (BTC-USD) accounts for 97% of MicroStrategy’s (MSTR) valuation. Without it, the stock would be worth 60% of its current share price.
“Bulls tout management’s ‘intelligent’ use of leverage and accretive Bitcoin (BTC-USD) purchases from equity sales proceeds as reasons why shares should trade at a substantial premium,” analysts explained in the note. “But we find the logic flawed. Leverage cuts both ways and while MicroStrategy (MSTR) has succeeded in increasing the amount of Bitcoin held, the impact of massive dilution has also kept the amount of Bitcoin per share virtually unchanged in recent years. Shareholder value creation has been overwhelmingly driven by simple bitcoin price appreciation – much as it would from owning bitcoin outright.”
In conclusion, at MicroStrategy’s (MSTR) current stock price, every 10% change in Bitcoin (BTC-USD) drives an initial 9% change in the stock’s implied equity value per share, analysts said.
So, with the current premium of 2.6x, a more historically consistent 1.3x of premium would mean a 50% downside in MicroStrategy (MSTR) relative to the coin.