MicroStrategy (MSTR) Slumps 9% As Kerrisdale Capital Shorts The Stock

MicroStrategy (MSTR) shares have plunged by about 9.07% to $1,735.74, a drop that might be a reaction to the stock short position from investment asset management firm Kerrisdale Capital

Kerrisdale Capital Shorts MicroStrategy, Longs Bitcoin

On Thursday, Kerrisdale Capital revealed its plans to short-sell its MSTR stock and bet long on the leading cryptocurrency by market capitalization Bitcoin (BTC). The short seller acknowledged the recent jump in the price of the MicroStrategy shares as Bitcoin price also surged. However, the firm stated that this “is often the case with crypto, things have gotten carried away.” 

The firm believes that MSTR will not be an exception. Already the price of Bitcoin implied in MSTR shares price is now over $177,000, which is more than two and half times the spot price of the cryptocurrency. Kerrisdale Capital noted that none of the reasons cited for MSTR attractiveness justifies paying more than double for the same coin.

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

Never were there days when MicroStrategy shares represented a rare, unique way to gain access to Bitcoin, per Kerrisdale Capital report. Bitcoin can easily be obtained from brokerages, crypto exchanges, and more recently fee exchange-traded products (ETPs) and exchange-traded funds (ETFs) like BlackRock’s IBIT and Fidelity’s FBTC. 

Currently, MicroStrategy’s valuation is made up of 97% Bitcoin, especially after its last acquisition that moved its BTC holding to 214,246 units of the flagship cryptocurrency. While it has $28 billion as its market capitalization, MicroStrategy’s Bitcoin holding is valued at $15.2 billion. 

Short Sellers Position on MSTR Stock Shifts

Noteworthy, Kerrisdale Capital is not the only investor selling short MicroStrategy shares and the latter is not the only stock with short interest. The crypto stock market has a total short interest of $10.7 billion with MicroStrategy and Coinbase (COIN) leading the group by 84% of the bearish bets.

Two weeks ago, MicroStrategy moved positively, sending a signal that it could defeat its short sellers, especially seeing the shares have recorded a 155% increase year-to-date. MSTR’s outlook at the time threatened traders’ bets against the company as they were looking at experiencing massive paper losses amidst the stock price surge. 

Even Larry Tentarelli, the Chief Technical Strategist of Blue Chip Daily Trend Report, considered shorting MSTR as a tough decision to make. However, the current market condition does not make it as tough as Tentarelli had stated.