Short sellers are targeting MicroStrategy stock, but what is the reasoning behind it?
Investment firm Kerrisdale Capital is shorting MicroStrategy stock, claiming it trades at an “unjustifiable premium” to Bitcoin.
Sahm Adrangi, chief investment officer at Kerrisdale Capital, explained the firm’s perspective. He summed up MicroStrategy’s business model in six words: “They own X amount of Bitcoin.”
Adrangi and his colleagues believe that this simple fact does not justify MicroStrategy’s stock price. According to a report from March, MicroStrategy’s stock price implies a Bitcoin price that is two and a half times higher than the actual market price.
Adrangi elaborated: “The software business is worth a billion, maybe a billion and a half — it’s not worth very much. Michael Saylor has bought all this Bitcoin. If he wants to buy more, he issues $1 billion of debt and buys $1 billion more Bitcoin. This doesn’t increase the company’s enterprise value.”
“Bitcoin prices need to rise for the company’s value to increase. If Bitcoin prices fall, so does the company’s value. The company should be trading at the value of its Bitcoin holdings. Our strategy is to short MicroStrategy and go long on Bitcoin.”
Michael Saylor’s Bitcoin Strategy
MicroStrategy began purchasing Bitcoin in 2020 under the leadership of Michael Saylor, its executive chairman and co-founder. Saylor is a strong advocate for Bitcoin, and his strategy has led MicroStrategy to acquire substantial quantities of the cryptocurrency.
On June 20, MicroStrategy bought an additional 11,931 BTC for $786 million, bringing its total Bitcoin holdings to 226,331 BTC. In total, MicroStrategy has spent $8.3 billion on Bitcoin, which is now valued at $14.6 billion.
Summary Review: Kerrisdale Capital’s short position on MicroStrategy stems from their belief that the company’s stock price is overly inflated relative to the actual value of its Bitcoin holdings. They argue that unless Bitcoin prices increase significantly, MicroStrategy‘s stock remains overvalued. This stance highlights the ongoing debate about the valuation of companies heavily invested in volatile assets like Bitcoin.
Disclaimer: Remember that nothing in this article and everything under the responsibility of Web30 News should be interpreted as financial advice. The information provided is for entertainment and educational purposes only. Investing in cryptocurrency involves inherent risks and potential investors should be aware that capital is at risk and returns are never guaranteed. It is imperative that you conduct thorough research and consult with a qualified financial advisor before making any investment decision.
