Here’s why MicroStrategy stock and Bitcoin price have diverged

MicroStrategy shares and Bitcoin price have historically had a close correlation, with the company becoming the largest investor in BTC.

MicroStrategy shares are down 21% over the past 30 days, while Bitcoin (BTC) is down less than 2%. This marks a significant divergence, as MSTR shares often move in tandem with Bitcoin.

Bitcoin and MicroStrategy stock price | Source: crypto.news

The stock is up over 320% this year, while Bitcoin is up 120%. Bitcoin’s superior performance and lack of expense ratio have led some investors to view Bitcoin as a better alternative to BTC and spot Bitcoin ETFs.

MSTR has continued to accumulate Bitcoin this year and currently holds 446,400 coins worth over $42 billion. This figure is well below the company’s market value of more than $65 billion.

The main reason for the current divergence between Bitcoin and MicroStrategy shares is that the company announced plans to issue 10 billion shares to fund new Bitcoin purchases. Its medium-term goal is to raise $42 billion through equity and fixed income between 2025 and 2027.

According to Yahoo Finance, the company has 225 million shares outstanding, meaning the share count will increase by over 4,344%. Raising capital by issuing equity dilutes existing shareholders and reduces their ownership in the company. For a for-profit company, this also reduces earnings per share.

In an elaborate X heading, the Kobeissi Letter outlined the company’s plight. Raising more equity capital would dilute existing shareholders, but if the share reauthorization fails, MicroStrategy will lack the funds to continue its Bitcoin acquisition strategy.

Something doesn’t come to mind here:

MicroStrategy, $MSTRmost popularly known as “leveraged” #Bitcoin game of the year.

Meanwhile, Bitcoin gained +2% in the last month. $MSTR It is currently down about -50%.

What’s going on? Let’s explain.

(one thread)

— Kobeissi Letter (@KobeissiLetter) 30 December 2024

Despite these challenges, there is a strong possibility that MicroStrategy’s shareholders will approve the share count increase. Michael Saylor, a key proponent of the plan, holds 46.8% of the outstanding shares. Saylor is highly respected by shareholders, who have seen shares rise nearly 2,000% in the last five years.

MicroStrategy stock valuation resets

Additionally, the decline in MicroStrategy shares may reflect the market adjusting the valuation premium as the company is perceived by some to be overvalued. Specifically, MicroStrategy’s equity valuation is $65 billion, far exceeding the $42 billion valuation of its Bitcoin assets.

This valuation means the core technology business is worth around $23 billion, which is unlikely. The latest results showed that the software division generated sales of $129 million in the third quarter and reported a net loss of $8.4 million.

The outlook for MicroStrategy shares in 2025 will largely depend on Bitcoin’s performance. Bitcoin’s recovery towards an all-time high could lead to further gains for MSTR shares as investors capitalize on the decline.