The Downgrade Dilemma
On December 8, 2020, Citigroup made headlines with a surprising downgrade of MicroStrategy’s stock (MSTR). But, as the saying goes, sometimes the market has its own mind. Following the downgrade, MSTR stock shot up an astounding 113.27%, moving from $289.45 to a whopping $617.31. Meanwhile, Citigroup itself saw a slight decline of 0.63%, dropping from $58.36 to $57.99. It’s the kind of plot twist no one saw coming.
Why is MicroStrategy Winning?
MicroStrategy’s secret weapon? Bitcoin. The company shifted its treasury holdings dramatically towards Bitcoin, making it the biggest public holder with over 70,000 BTC—worth roughly $2.4 billion at today’s prices! This treasure trove is like a gold mine but in digital form. Despite Citigroup’s downgrade, MicroStrategy proved the naysayers wrong by tying its fate to the soaring value of Bitcoin.
Capital Moves
In an unexpected twist of fate, the very day after Citigroup’s downgrade, MicroStrategy announced a bold move—raising $550 million through convertible bonds. The twist? The plan was to invest this capital straight into Bitcoin. Talk about doubling down! Their official statement stated:
“MicroStrategy intends to invest the net proceeds from the sale of the notes in bitcoin in accordance with its Treasury Reserve Policy pending the identification of working capital needs and other general corporate purposes.”
Many believe this proclamation is what triggered Citigroup’s cautious stance. Ratings are one thing, but when the stakes are Bitcoin, it can get exciting fast!
Analyst Skepticism
Citi’s analyst, Tyler Radke, issued a sell rating, albeit with a begrudging nod to MicroStrategy’s impressive Bitcoin returns which had racked up a staggering $250 million by then. Radke remarked:
“While impressive, it pales in comparison to the 172% return in the stock.”
Candidly, Radke suggested the market might be overpricing MicroStrategy’s core business. But here’s where it got spicy: the very same month, Bitcoin’s value skyrocketed from approximately $18,319 to over $42,000. It was like selling ice cream in the middle of a heatwave—everyone wanted a taste.
The Future is Bitcoin
Despite any skepticism regarding its core business, MicroStrategy’s fortunes are now tethered closely to Bitcoin’s fluctuation. CEO Michael Saylor stands firm, eagerly scooping up Bitcoin whenever the price dips, a position that illustrates a wild belief in his company’s strategy.
In MicroStrategy’s fourth-quarter financial report, Saylor made it clear:
“Going forward, we continue to plan to hold our bitcoin and invest additional excess cash flows in bitcoin.”
This bullish outlook means the connection between MicroStrategy’s stock and Bitcoin is likely to remain strong, as long as the price of Bitcoin keeps climbing.
Conclusion: The Highs and Lows of Market Dynamics
In the roller-coaster world of stock and cryptocurrency, MicroStrategy’s rise speaks volumes about market psychology. As we watch this interplay of big investments and digital currencies, one thing is certain—keep your seatbelt fastened; it’s going to be a bumpy ride!
