Here’s why MicroStrategy stock and Bitcoin price have diverged
MicroStrategy stock and Bitcoin price have historically had a close correlation as the company became the biggest BTC investor.
MicroStrategy shares have dropped by 21% in the last 30 days, while Bitcoin (BTC) is down by less than 2%. This marks a significant divergence, as MSTR stock has typically moved in tandem with Bitcoin.
The stock has risen by over 320% this year, while Bitcoin has jumped by 120%. Its outperformance of Bitcoin, combined with the lack of an expense ratio, has led some investors to view it as a better alternative to BTC and spot Bitcoin ETFs.
MSTR has continued to accumulate Bitcoins this year and currently holds 446,400 coins valued at over $42 billion. This figure is significantly lower than the company’s market cap of over $65 billion.
The primary reason for the current divergence between Bitcoin and MicroStrategy stock is the company’s announcement of plans to issue 10 billion shares to fund new Bitcoin purchases. Its medium-term goal is to raise $42 billion through equity and fixed income between 2025 and 2027.
According to Yahoo Finance, the company has 225 million outstanding shares, meaning the share count will increase by over 4,344%. Raising capital by issuing equity dilutes existing shareholders, reducing their ownership in the company. For a profit-making company, this also reduces earnings per share.
In a detailed X thread, The Kobeissi Letter outlined the company’s predicament. Raising more equity dilutes existing shareholders, but if the share reauthorization fails, MicroStrategy will lack the funds to continue its Bitcoin acquisition strategy.
Despite these challenges, there is a strong likelihood that MicroStrategy’s shareholders will approve the share count increase. Michael Saylor, a key advocate for the plan, holds 46.8% of the outstanding shares. Saylor is highly respected by shareholders, who have witnessed the stock surge by nearly 2,000% in the past five years.
MicroStrategy stock valuation reset
Additionally, the decline in MicroStrategy stock may reflect the market adjusting its valuation premium, as the company is perceived to be highly overvalued by some. Specifically, MicroStrategy has an equity valuation of $65 billion, far exceeding the $42 billion value of its Bitcoin holdings.
That valuation implies that its core technology business is valued at about $23 billion, which is unlikely. The most recent results showed that its software business generated $129 million in sales during the third quarter and reported a net loss of $8.4 million.
The outlook for MicroStrategy stock in 2025 will depend heavily on Bitcoin’s performance. A rebound to a new all-time high for Bitcoin could drive further gains for MSTR stock as investors capitalize on the dip.
