MicroStrategy's Bitcoin Strategy: Riding Out the Volatility

Key Takeaways

• MicroStrategy (MSTR) stock has experienced a significant downturn this year.
• MicroStrategy remains profitable on its Bitcoin investments.
• Investors are shorting MicroStrategy stock as a hedge against crypto longs.
• MicroStrategy continues to aggressively accumulate Bitcoin.
• A slowdown in digital asset treasury inflows is impacting the market.

Introduction

MicroStrategy's high-conviction Bitcoin investment strategy is facing headwinds, prompting speculation about its viability. However, a closer examination reveals a more nuanced picture.

MicroStrategy's Stock Performance: A Closer Look

Google Finance data indicates that MicroStrategy (MSTR) stock is down nearly 60% over the past year and over 40% year-to-date. The stock price declined from around $300 in October to approximately $170 at the time of writing.

Sustained Profitability in Bitcoin

Despite this decline, MicroStrategy continues to realize double-digit profits on its Bitcoin purchases, and its long-term equity performance continues to outperform major tech stocks. According to BitcoinTreasuries.NET data, MicroStrategy acquired its Bitcoin at an average price of $74,430. With Bitcoin trading around $86,000, MicroStrategy's Bitcoin investments are still yielding profits of approximately 16%.

Long-Term Performance Metrics

Over a five-year period, MicroStrategy stock has appreciated by more than 500%, according to Google Finance data. In comparison, Apple recorded a gain of 130%, while Microsoft saw an increase of nearly 120% during the same period. Even within a shorter two-year timeframe, MicroStrategy stock is up by 226%, surpassing Apple's 43% gains and Microsoft's 25% increase.

Shorting MSTR as a Crypto Hedge

The stock slump may be less about Bitcoin fundamentals and more about how major investors hedge their crypto exposure. BitMine chairman Tom Lee explained in a recent CNBC interview that MicroStrategy has become a convenient tool for hedging Bitcoin positions.

MicroStrategy as a Market Pressure Valve

This dynamic has transformed MicroStrategy into an unintended pressure valve for the crypto market, absorbing hedges, shorts, volatility, and market anxiety that may have little bearing on its core Bitcoin strategy and its long-term thesis.

Michael Saylor's Steadfast Resolve

Despite the stock price slowdown, MicroStrategy chairman Michael Saylor reaffirmed his commitment on X, stating that he "won't back down."

Increased Bitcoin Holdings

On November 17, MicroStrategy announced the acquisition of 8,178 Bitcoin for $835.6 million. This purchase represents a significant increase over previous investments, which averaged between 400 and 500 coins per week. The transaction boosted its total Bitcoin holdings to 649,870, valued at approximately $56 billion.

Slowdown in Digital Asset Treasury Inflows

On November 6, crypto market maker Wintermute identified stablecoins, exchange-traded funds (ETFs), and digital asset treasuries (DATs) as primary sources of crypto liquidity, noting that a slowdown in liquidity inflows has contributed to the recent market downturn. The firm indicated that liquidity inflows across these three areas have plateaued.

Decreased Inflows

Data aggregator DefiLlama reported that DAT inflows began to decline in October, following the liquidation of $20 billion in crypto positions. DAT inflows decreased from roughly $11 billion in September to around $2 billion in October, representing an 80% decrease.

Further Decline

Inflows decreased further in November. As of Monday, DAT inflows have only reached over $500 million this month, a 75% decrease compared to October.

Conclusion

Despite recent challenges, MicroStrategy's Bitcoin strategy remains resilient, buoyed by long-term profitability and increased holdings. However, investors should monitor the slowdown in digital asset treasury inflows and its potential impact on the market.