Investment manager Kerrisdale Capital said on March 28 that shares of MicroStrategy (MSTR) – the world’s largest corporate Bitcoin holder – are currently trading at an “unjustifiable” premium to MicroStrategy’s actual Bitcoin holdings.

MSTR shares have exploded in price over the past two months, but many analysts think the stock is due for a major pullback.

The MicroStrategy Bitcoin Premium

“We are long bitcoin and short shares of MicroStrategy… Shares of MicroStrategy have soared amid a recent rise in the price of bitcoin but, as is often the case with crypto, things have gotten carried away,” the firm wrote.

At the time the report was published, MSTR’s price was over $1900 per share. Based on the company’s BTC holdings per share, Kerrisdale said this would imply a current Bitcoin price of $177,000 per coin – a spot price two and a half times higher than where it trades today.

GM. We’re short $MSTR and long bitcoin. Report avail at https://t.co/XDg6uAJDRa. Crypto trades often get carried away and $MSTR is no exception. The BTC price implied in $MSTR shares is now over $177k, an unjustifiable 2.6x the spot price of BTC. (1/6)

— Kerrisdale Capital (@KerrisdaleCap) March 28, 2024

Since MicroStrategy’s balance sheet is almost entirely comprised of Bitcoin (BTC), investors have often valued the firm like it were a Bitcoin spot ETF. The company’s executive chairman, Michael Saylor, has called the firm a Bitcoin ETF with perks including moderate leverage and no management fees.

Starting in January, the company faced an influx of competition from several asset managers that launched the United States’ first actual Bitcoin spot ETFs. BlackRock’s iShares Bitcoin Trust, IBIT, has already accumulated more Bitcoin than MicroStrategy.

“The days when MicroStrategy shares represented a rare, unique way to gain access to Bitcoin are long over,” wrote Kerrisdale.

Any advantages the firm has over regular ETFs – such as diluting shares to acquire more BTC – are outweighed by the sheer size of the premium.

“Assuming the current premium of 2.6x contracts to a more historically consistent 1.3x represents 50% downside in MSTR relative to bitcoin,” the firm said.

MSTR Price Tanks

Shortly after Kerrisdale’s report was published, MSTR shares plummeted by 8% on the day to $1,761. Meanwhile, Bitcoin is trading 1.7% higher at $70,600, and Bitcoin mining firm Marathon Digital is trading 4% higher at $24.04.

MSTR continues to vastly outperform BTC year-to-date, with the two assets boasting gains of 158% and 66%, respectively.

According to saylortracker.com, MicroStrategy Bitcoin holdings are currently worth over $15 billion, having more than doubled in value from their average purchase price.

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