This week witnessed a significant decrease in MicroStrategy's stock value.
MicroStrategy's shares saw a substantial dip of up to 20.8% within the initial four trading sessions of the week, with the decline being attributed to a dip in Bitcoin's price and a decrease in MicroStrategy's premium compared to its assets as per its balance sheet. By Friday morning, shares continued to plummet by 22.5% for the week, as per data sourced from S&P Global Market Intelligence during pre-market trading.
MicroStrategy's ultimate aim is to leverage its stocks to acquire more Bitcoin and consequently boost the amount of Bitcoin held per share. This strategy thrives when MicroStrategy's stock trades at a premium compared to the value of the Bitcoin per share. By issuing shares to buy Bitcoin, MicroStrategy can increase the Bitcoin per share, potentially boosting Bitcoin's price by reducing its availability in the market.
The strategy, however, becomes ineffective once there is no premium or when the price of Bitcoin drops. A drop in both Bitcoin and MicroStrategy's shares has been observed this week. Bitcoin's value has declined by 5.5% over the past seven days.
CEO Michael Saylor's risky move
Employing MicroStrategy's stock as a means to manipulate Bitcoin's price is a risky long-term strategy. Stocks with underlying assets such as Bitcoin rarely trade at a premium to the actual value of the asset they hold. The current premium-driven situation is unusual and its collapse could result in a drastic fall in MicroStrategy's stock price.
MicroStrategy has also emerged as the leading buyer of Bitcoin in the open market, influencing its price. If MicroStrategy can no longer rely on its premium for share issuance and the demand for Bitcoin decreases, this could be a double blow to the stock. I anticipate that MicroStrategy's decline isn't yet at an end as its unique strategy to bolster its stock's popularity unfolds and unravels.
This strategy relies heavily on maintaining a premium in MicroStrategy's stock price, allowing for the acquisition of more Bitcoin. However, with a decrease in both Bitcoin's price and MicroStrategy's share price, the availability of funds for investing in Bitcoin may become limited.
Investors may reconsider their finance decisions when faced with the prospect of a declining stock price and a slower pace of Bitcoin acquisition. The current situation, with Bitcoin's price dip and MicroStrategy's share price decrease, could potentially affect MicroStrategy's money-making potential through investing in Bitcoin.
