Today, many eyes are closely following the carnage in the crypto world. The world’s largest cryptocurrency, Bitcoin (BTC-USD), is down 8% today and more than 50% from its high. For companies like MicroStrategy (NASDAQ:MSTR), that’s certainly not a good thing. Thus, many may not be surprised to learn that MSTR stock is down big today.
However, MicroStrategy’s rather incredible intra-day decline of more than 22% as of 2:00 p.m. Eastern is very notable. Typically, MicroStrategy’s stock price correlates closely with the movements in Bitcoin. Much of that has to do with the more than 129,000 Bitcoin the company has acquired over the years.
MicroStrategy’s rather interesting differentiation strategy has been to hold massive amounts of Bitcoin on its balance sheet. Using debt, the company has continued to buy Bitcoin and has now become more of a proxy on the price of Bitcoin than the enterprise analytics software company it was once known for.
With that said, let’s dive into why MSTR stock has so noticeably underperformed Bitcoin of late.
Why Is MSTR Stock Nosediving Far In Excess of Bitcoin?
Earlier this month, during MicroStrategy’s earnings call, an executive made a rather profound statement. According to CFO Phong Le, should the price of Bitcoin dip below $21,000, MicroStrategy could receive a margin call.
Today, Bitcoin has sunk below $31,000 per token. This means that if this token declines another 30% or so from here, MicroStrategy may be forced to sell a portion of its crypto holdings. For a company that’s focused on buying more at lower levels, this isn’t a positive scenario.
Additionally, it’s worth noting that Bitcoin’s price today approximates the average price MicroStrategy has paid to acquire said Bitcoin — around $30,700. Thus, it’s entirely possible that MicroStrategy’s balance sheet could see weakness, should this bear market continue.
Today, investors seem to think this bear market has legs. Thus, MicroStrategy’s financial position, while not yet dire, is certainly deteriorating. Accordingly, investors seem content with taking a risk-off approach with MSTR stock, given its ties to Bitcoin.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
