MicroStrategy shares tumbled 6.6% Thursday, underperforming Bitcoin, which slipped 4% to approximately $97,000. Despite the Nasdaq 100 listing set for Dec. 23, the company’s stock has struggled, reflecting broader concerns about its Bitcoin premium and long-term sustainability.
Bitcoin Premium Narrows as Stock Lags Cryptocurrency Gains
MicroStrategy’s stock has faced sharp declines since peaking at a record $543 on Nov. 21. Over the past month, it has dropped nearly 25%, even as Bitcoin prices have risen about 5%. The disconnect points to a shrinking Bitcoin premium—the valuation tied to its cryptocurrency holdings—which has declined from 3.5 times the value of its Bitcoin stash in November to just 2 times now.
The company owns approximately 439,000 Bitcoins, valued at $43 billion. Despite this substantial asset base, the enterprise value of $79 billion, coupled with $7 billion in debt, has raised questions about the stock’s viability. Investors are wary of the premium contraction, which could signal more downside ahead.
Nasdaq Inclusion: A Boost, but Not a Cure-All
MicroStrategy’s upcoming inclusion in the Nasdaq 100 index may bring short-term inflows from index fund purchases. However, this event hasn’t shielded the stock from selling pressure. Analysts highlight that Nasdaq’s inclusion criteria rely heavily on market value, making the addition mechanical rather than indicative of a strong business case.
Speculation had circulated about potential inclusion in the S&P 500 index, but that appears less likely. S&P’s index committee evaluates companies based on profitability and other qualitative factors, and MicroStrategy’s reliance on Bitcoin aligns it more with a closed-end fund or ETF—categories typically excluded from the S&P 500.
Accounting Changes Could Change the Game in 2025
An upcoming accounting change in 2025 may reshape MicroStrategy’s financial narrative. Under the new rules, the company will value its Bitcoin holdings at fair market prices rather than the current low carrying values. This shift means that fluctuations in Bitcoin’s price will directly impact quarterly net income.
Michael Saylor, MicroStrategy’s chairman, recently expressed optimism about Bitcoin’s future and suggested that the accounting change could lead to billions in quarterly net income. However, inclusion in the S&P 500 would still require meeting profitability benchmarks, which remains uncertain.
Robert Willens, a New York-based accounting expert, compared the change to how Berkshire Hathaway reports its equity portfolio values. While the accounting adjustment could enhance financial transparency, it also introduces volatility tied to Bitcoin’s price swings.
Analyst Views: Bullish but Cautious
Analysts remain optimistic about MicroStrategy’s strategy of leveraging equity and debt sales to purchase Bitcoin. Since late October, the company has raised $17 billion, mostly through equity sales, to fuel its Bitcoin acquisitions.
Benchmark analyst Mark Palmer has set a price target of $650, citing a sum-of-the-parts valuation. His 2026 projection assumes Bitcoin prices will reach $225,000 by year-end. While this outlook reflects bullish sentiment, it hinges heavily on Bitcoin’s performance and the company’s ability to maintain its current approach.
One unique metric the company touts is its Bitcoin “yield,” which measures the ratio of Bitcoin holdings to shares outstanding. This figure, exceeding 70% in 2023, depends on MicroStrategy issuing stock at a premium to its Bitcoin holdings—a strategy that is far from guaranteed in a volatile market.
The Road Ahead: Risks and Rewards
MicroStrategy’s premium to its Bitcoin holdings has fluctuated significantly in recent years, ending 2023 at a modest 20% premium compared to parity in 2022. The decline in premium, coupled with Bitcoin’s inherent volatility, poses risks to shareholders. Analysts caution that if Bitcoin prices falter, MicroStrategy’s stock could see further declines.
Despite these risks, the company’s bold bet on Bitcoin has made it a unique player in the financial world. With accounting changes on the horizon and ongoing debates about its S&P 500 eligibility, 2024 will be a pivotal year for MicroStrategy and its investors.
