Kerrisdale Capital, a hedge fund, in the present day disclosed a nuanced funding thesis: going lengthy on Bitcoin whereas concurrently taking a brief place on MicroStrategy shares. This transfer relies on the evaluation that MicroStrategy, which has positioned itself as a de facto Bitcoin investment vehicle, is buying and selling at a considerably unjustified premium to the underlying cryptocurrency that primarily constitutes its worth.

Lengthy Bitcoin, Quick MSTR

The hedge fund’s evaluation articulates, “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.” Kerrisdale highlights a essential discrepancy, noting that MicroStrategy’s inventory worth implies a BTC worth of “over $177k, i.e., two and a half times the spot price of Bitcoin.”

Delving into the reasoning behind the premium on MicroStrategy’s shares, Kerrisdale debunks a number of arguments which have been made in favor of the corporate’s market valuation. The report categorically states, “None of the reasons commonly provided for MicroStrategy’s relative attractiveness justify paying well over double for the same coin.” This assertion underscores the hedge fund’s stance on the overvaluation of MicroStrategy in relation to direct BTC publicity.

MicroStrategy, beneath CEO Michael Saylor’s management since 1989, has aggressively pursued BTC accumulation, making it a central pillar of its funding technique. From August 2020 to 2023, the corporate made vital monetary maneuvers to extend its holdings, which now exceed 214,000 BTC.

Kerrisdale’s valuation method considers MicroStrategy’s enterprise software program enterprise and its BTC reserves. The evaluation concludes that the software program enterprise, whereas nonetheless operational, “no longer contributes meaningful value to the overall enterprise,” spotlighting the overwhelming affect of Bitcoin on the corporate’s valuation.

A key side of Kerrisdale’s critique focuses on the inflated premium over Internet Asset Worth (NAV) attributed to MicroStrategy’s shares. “At 2.6x, MicroStrategy’s equity premium is exceptionally high,” the report states, suggesting an unsustainable market place relative to historic knowledge. Kerrisdale argues {that a} correction in direction of a extra traditionally constant premium would indicate a considerable draw back for MicroStrategy’s inventory relative to Bitcoin’s efficiency.

The report completely examines the potential implications of MicroStrategy’s monetary technique, together with its reliance on leverage and the dilutive results of its financing mechanisms. Kerrisdale’s evaluation means that whereas MicroStrategy’s aggressive capital market actions have succeeded in rising its Bitcoin holdings, they’ve concurrently led to a stagnation within the quantity of Bitcoin per share, as a result of dilutive influence of debt financing and fairness choices.

Concluding, Kerrisdale Capital estimates that “assuming the current premium of 2.6x contracts to a more historically consistent 1.3x represents 50% downside in MSTR relative to bitcoin.” This conclusion is drawn from an examination of the interaction between MicroStrategy’s inventory premium, its Bitcoin holdings, and the broader market dynamics.

The reactions from the neighborhood have been slightly essential. Bit Paine (@BitPaine) commented, “Are you selling advance tickets to your funeral?”. One other crypto analyst, Trey Sellers (@ts_hodl), said, “Seems like a logical position to me, although markets can remain irrational longer than you can stay solvent, as they say.”

OSF (@osf_rekt) added, “There is probably nothing more dumb than publishing your mid-curve trade idea to an army of irrational degens who will make it their life mission to liquidate you.”

At press time, BTC traded at $71,519.