MicroStrategy, a software company, has transformed into a major player in the world of cryptocurrency. The firm’s recent addition to the Nasdaq 100 has seen its stock soar by 496% in 2024. Here are three reasons why MicroStrategy’s stock could continue to rise:
1. **Premium Investors’ Bet**: MicroStrategy values each share at 2.5 times the value of its bitcoin holdings, making investors willing to pay a premium for the company’s stock. This creates a self-reinforcing cycle as the firm sells shares to fund more bitcoin purchases.
2. **Regulatory Clarity Under Incoming President**: The incoming president is likely to ease regulatory scrutiny on cryptocurrency, sending Bitcoin’s price higher. This could benefit MicroStrategy, which has been a major proponent of institutional adoption and has increased its bet on the asset in recent months.
3. **Short Interest Puts Pressure on Stock Price**: Rising short interest in MicroStrategy could lead brokers to demand short sellers buy stock to cover their losses, putting upward pressure on the firm’s share price. This phenomenon could drive the stock up further if it continues to sell shares to fund its bitcoin investments.
MicroStrategy’s history is also notable, having experienced significant rises in the past – including a 40,387% increase during the dot-com boom. The company has been a major player in buying and holding bitcoin since 2020, with its stock price surging more than it did during that time. Despite its struggling software business, MicroStrategy’s stock has risen significantly due to its growing bitcoin holdings.
Some analysts have questioned whether MicroStrategy’s strategy is sustainable, with the premium investors pay for its stock potentially stabilizing at a certain level. However, others believe that the firm’s growing bet on bitcoin will continue to drive up the price of both the cryptocurrency and its own shares. The incoming administration’s proposed changes to regulatory policies also suggest that MicroStrategy could benefit from increased clarity around cryptocurrencies.
As the company continues to sell its rising stock to fund more bitcoin purchases, it remains to be seen whether there is a limit to how much they can do before the premium investors pay for their shares converges to zero.
Source: https://www.forbes.com/sites/petercohan/2024/12/17/up-496-microstrategy-stock-may-pop-by-selling-shares-to-buy-bitcoin