MicroStrategy Stock (MSTR): Why Is It Down So Much? 21st Capital COO Explains

MicroStrategy Inc. (Nasdaq: MSTR), the business intelligence firm known for its aggressive Bitcoin acquisition strategy, has seen its stock plummet by more than 20% in December, dropping from $487.47 at the beginning of the month to $309.42 as of Dec. 31, 2024.

Source: Google Finance

This sharp decline has raised questions among investors about the factors contributing to the downturn, particularly as Bitcoin itself experienced a significant pullback during the same period.

Source: TradingView

On Monday, Sino G., Co-Founder and COO at 21st Capital, addressed the MSTR stock decline in a post on X, emphasizing the close correlation between MicroStrategy’s market performance and Bitcoin’s price dynamics. He highlighted the sensitivity of MicroStrategy’s modified Net Asset Value (mNAV) to Bitcoin sentiment, explaining that the stock tends to outperform during Bitcoin rallies but underperform in sideways or bear markets. Sino described mNAV as a measure that contracts during periods of stagnant or declining Bitcoin prices, making MSTR highly sensitive to the cryptocurrency’s sentiment shifts.

In his post, Sino noted that some investors had been overly optimistic, believing that MSTR could decouple from Bitcoin’s downturns. He dismissed this belief as “wishful thinking,” reiterating that MicroStrategy’s business model inherently ties its performance to Bitcoin’s price movements. According to Sino, MSTR’s volatility is a double-edged sword: it amplifies gains during Bitcoin’s bull runs but magnifies losses in bearish or sideways markets.

Sino likened MicroStrategy to a “machine that converts fiat to Bitcoin,” explaining that the company’s strategy effectively transfers monetary energy into Bitcoin by issuing shares at a premium to acquire more of the cryptocurrency. This approach, he argued, allows pure Bitcoin holders to capture the premium over time, as MSTR’s activities indirectly benefit Bitcoin itself. However, he cautioned against FOMO-driven investments in MSTR, urging investors to carefully consider the stock’s high sensitivity to Bitcoin sentiment and market conditions.

Here are the key drivers for the decline in MicroStartegy’s stock:

Profit-Taking and Bitcoin Sentiment: After Bitcoin’s record-breaking rally earlier in December, many investors engaged in profit-taking, leading to a pullback in both Bitcoin’s price and Bitcoin-related equities like MSTR. Sino’s analysis underscores that the contraction in mNAV during these periods directly impacts MSTR’s stock price.

Federal Reserve’s Hawkish Stance: The Fed’s December meeting resulted in a statement and supporting material indicating a more hawkish stance on future rate cuts over inflation concerns, which dampened investor appetite for risk assets. This development contributed to selling pressure on cryptocurrencies and tech stocks, further weighing on MSTR.

Concerns Over Leverage: Some analysts and investors have raised concerns about MicroStrategy’s heavy reliance on leverage to fund its Bitcoin purchases. While this strategy amplifies gains during bull markets, it also increases the company’s risk exposure during market downturns. The potential for financial strain has fueled bearish sentiment around the stock.

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