The aggressive acquisition of BTC by MicroStrategy and the higher MSTR premium over Bitcoin. The following are the potential long-term risks.
In the past few weeks, MicroStrategy has been on a Bitcoin purchasing spree, resulting in a significant increase in MSTR stock’s value, reaching an all-time high of $473 in November.
Nevertheless, the company’s valuation premium, debt exposure, market volatility, and concentration risks are four significant risks to BTC that investors should consider before making substantial investments, according to the on-chain data platform IntoTheBlockchain.
MicroStrategy’s Risk Poses to Bitcoin
MicroStrategy’s total holdings now stand at 386,700 BTC, following acquiring 55,000 Bitcoins for a $5.4 billion investment value earlier this week. This was the company’s third consecutive strategic BTC purchase after the Donald Trump victory in early November. Corporate bonds with low interest rates have been the primary source of financing for these acquisitions.
Although MicroStrategy’s aggressive accumulation of BTC has established it as a market leader, it is not without its hazards. The four primary hazards that the organization presents to Bitcoin are detailed in the IntoTheBlock report.
MSTR Valuation Premium: At one juncture, the MSTR stock was trading at a premium of over 3.2 times its net asset value in Bitcoins. It raised concerns about the potential for a significant valuation bubble to subside in the event of unfavorable circumstances.
Investors are beginning to evaluate the potential downside risks, which has resulted in an exceptionally volatile MSTR stock.
Debt Exposure: As previously mentioned, MicroStrategy has been purchasing most of its BTC through debt issuance and possesses over $7 billion in convertible notes. BTC sales may be necessitated by repayment or conversion to equity in the event of deteriorating market conditions.
Market Volatility: The current volatility of MSTR stock is four times that of BTC and three times that of Ethereum, making it highly susceptible to fluctuations in the price of Bitcoin. MSTR volatility reached 200% in previous episodes, including those in 2021 and 2022.
Concentration Risks: The company is susceptible to market fluctuations due to its ownership of 1.9% of BTC’s supply. Any compelled liquidation could significantly impact the price of Bitcoin and the value of MSTR stock.
In a favorable market, MicroStrategy’s high-leverage Bitcoin strategy has yielded positive results thus far. Nevertheless, the hazards of debt exposure, market volatility, and concentration are critical factors to monitor.
Where Will MSTR Stock Go Next?
Last week, the MSTR stock reached an all-time peak of $473. Subsequently, it experienced a 35% correction, which alleviated the substantial premium it held over BTC. The stock has reversed its trajectory after reaching a low of $355 this week. Additionally, Bernstein analysts established an enormous price target of $600 MSTR.
The stock of MicroStrategy has already increased by 58% this month and by 465% since the beginning of 2024. Confident market analysts have advised new investors to exercise caution when establishing a buy position. Instead of MSTR, experts contend that there are superior opportunities, such as Marathon Digital (MARA).