As a seasoned analyst with over two decades of experience navigating the complexities of financial markets, I have to say that MicroStrategy (MSTR) is an intriguing play on Bitcoin (BTC). However, it’s not for the faint-hearted or risk-averse investors.


Following the election, Bitcoin’s price surged to unprecedented peaks, nearing but not quite reaching $100,000. Currently, it stands at approximately $98,000. This raises an intriguing query: how did MicroStrategy (MSTR), the company led by Michael Saylor, fare during this time?

1) The shares of the company, much like its daring and high-risk founding partner and the value of Bitcoin, surged after the election to reach a new all-time high (ATH) above $500 – just as one would anticipate.

Last week, the stock suffered a sudden 22% drop due to short selling triggered by a report questioning the company’s valuation. This sparked my curiosity about any potential investment opportunities in the market related to this stock, or simply understanding whether it’s worth owning MSTR over Bitcoin.

This graph might give the impression that MSTR’s gains compared to Bitcoin are due to superior performance, but it’s important to note that MSTER is highly leveraged, with a significant portion of its assets tied up in Bitcoin. They have purchased approximately 386,700 BTC for nearly $22 billion, which accounts for about 99.5% of their total assets. To finance this investment, the company has borrowed around $9 billion at zero interest and raised an additional $4.6 billion in equity.

The relationship between MSTR (MicroStrategy) and BTC (Bitcoin) is quite significant, as shown by both Pearson and Spearman correlation coefficients, which are approximately 65% when using 12 months of daily closing prices. When you exclude leverage, the correlation becomes more linear. Essentially, Bitcoin’s price tends to influence MicroStrategy’s price. However, the correlation isn’t extremely strong for several reasons.

Essentially, MicroStrategy (MSTR) might not be a suitable stand-in for Bitcoin (BTC). If you’re not prepared for heightened volatility and leverage, then investing in MSTR may not be an ideal choice. Instead, consider purchasing a Bitcoin ETF. You can replicate the risk profile of MSTR by trading Bitcoin perpetual contracts or ETFs. However, if you’re after high leverage, it might be wiser to let Michael Saylor shoulder that risk while you focus on owning the price risk as an investor. Keep in mind, though, that a Bitcoin ETF is not a direct replacement for MSTR.

Considering the high association between MSTR and Bitcoin (BTC), and given MSTR’s substantial investment in BTC, could there be a trading opportunity here? Let’s examine the possibility of mean reversion. The significant surge in MSTR’s price before its recent decline last week has pushed the z-score close to four standard deviations (4σ). However, as you can see from the chart, historically, instances of mean reversion have been relatively scarce. This is largely due to the recent adoption of leverage to amplify its BTC position, which has significantly altered the relationship between these two assets compared to earlier periods.

In simpler terms, Mastercard (MSTR) may potentially sell about 13 million more shares of its stock, possibly increasing the gap between its value and Bitcoin (BTC). This implies that Mastercard might be significantly overpriced compared to Bitcoin, and a further decrease in this difference could happen.

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2024-12-04 20:21