MicroStrategy market valuation drops to $80 billion

Shares of MicroStrategy dropped 16 percent to $397 on Thursday after Citron Research, a well-known investment firm, said it had a long position in Bitcoin and a short position against the company. The revelation highlights growing worries that the company’s stock is overpriced because of what some consider to be an excessively high company valuation.

Citing stocks and ETFs offered on trading platforms Coinbase and Robinhood, Citron Research asserted that investing in Bitcoin has never been “easier.”.

MicroStrategy’s market capitalization exceeded $100 billion,  more than three times the value of the roughly 331,000 BTC currently valued at $33 billion. The market value of MicroStrategy has decreased to about $80 billion after the huge sell-off

Even though Bitcoin was getting close to $100,000 after a three-week surge in new all-time highs, Citron, which famously supported MicroStrategy in 2020 as “the best way to play Bitcoin,” claimed the company’s valuation had become “completely detached” from Bitcoin fundamentals.

MicroStrategy recently surpassed Nvidia as the second most actively traded stock on the Nasdaq by dollar volume.

Additionally, the analyst asserted that it “may have been $GME to last do it,” noting that it has been years since a stock has moved this much. According to a report by media outlet Sherwood,

“MicroStrategy functions as a leveraged Bitcoin amplifier, utilizing convertible debt to purchase additional Bitcoin while its stock trades at a premium during bull markets.”. As a result, MSTR’s stock rises in value, which enables it to raise money to buy more Bitcoin at a reduced cost. This creates a self-reinforcing cycle. This approach is risky, if Bitcoin goes into a prolonged bear market that drives MSTR’s stock below the conversion prices of its outstanding notes, worth more than $4.08 billion.

MicroStrategy may be forced to sell its Bitcoin holdings to pay off creditors in such a narrative given its small cash reserves (roughly $46.3 million). This could set off a vicious cycle in which the selloff of Bitcoin could lead to further price drops and more liquidations.