MicroStrategy's stock price fell 44% from its high point, is the encryption Fed narrative no longer there?

By Pzai, Foresight News

As a company with Bitcoin reserve as its core strategy, MicroStrategy (MSTR) has been favored by US stock investors in recent years due to its firm support for Bitcoin and the frenzied Bitcoin market environment.

However, since hitting an all-time high of $589 on November 21, MSTR shares have fallen more than 44% to $300, and its market value has fallen by as much as 34% in the past two weeks alone. As an outstanding cryptographic target in the U.S. stock market, subtle changes in the market environment have also evolved into violent fluctuations in stock prices. And in the end, can the narrative of the “crypto Fed” continue to maintain its former glory?

Highs down

Because of its business model, MicroStrategy's stock price is highly correlated with the price of Bitcoin. In December 2024, the price of Bitcoin fell by about 10% from a high of $108,000 to about $97,000. This pullback directly impacted MicroStrategy's balance sheet value, which in turn dragged down its stock price performance. MicroStrategy's share price has long traded at a premium relative to the value of its Bitcoin holdings. In November 2024, this premium was as high as 3.5x, but had contracted to 1.6x by early 2025. The contraction in premiums suggests that investor confidence in its “leveraged Bitcoin investing” narrative is waning.

Correlation between MSTR stock price and Bitcoin trend (the anchor is Binance BTCUSD currency pair)

As of December 2024, MicroStrategy holds approximately 446,000 Bitcoins, worth approximately US$43 billion, making it the world's largest corporate Bitcoin holder. This huge holding position occupies an important position in the cryptocurrency market, and it was selected into the Nasdaq Index in the same month, becoming one of the few cryptocurrency targets.

But outside of MSTR, global companies still maintain a relatively cautious attitude towards Bitcoin, an emerging asset. Although Bitcoin’s potential returns and asset diversification advantages have attracted the attention of some companies, its high volatility and regulatory uncertainty As well as compatibility issues with traditional corporate financial strategies, most companies choose to wait and see or make limited attempts. For example, Microsoft shareholders rejected a Bitcoin investment proposal in December 2024. One of the main reasons was that Bitcoin's high volatility conflicts with the company's need to pursue stable investment. Markus Thielen, founder of 10x Research, said in a note to clients: “With MicroStrategy’s stock price down 44% from its peak, and other companies adopting Bitcoin as a reserve asset strategy on a smaller scale, this (traditional) The positive news about Bitcoin generated by the corporate influx of claims appears to be losing steam."

Leverage strategies under pressure

MicroStrategy is raising money through equity and convertible debt issuances as it continues to accumulate Bitcoin. This strategy was regarded as a "flywheel for converting fiat currencies into Bitcoin" during the Bitcoin bull market and attracted a large number of investors. The company’s founder and CEO, Michael Saylor, has publicly stated many times that Bitcoin is “digital gold” and the best tool to resist inflation. And he is also actively lobbying American companies and governments to embrace Bitcoin.

And because MicroStrategy's business model is highly dependent on the price of Bitcoin, any fluctuations in the price of Bitcoin will have a significant impact on its stock price. MicroStrategy shares came under pressure as some investors took profits after Bitcoin hit an all-time high. On the policy front, related assets have also encountered certain resistance. The Federal Reserve issued a hawkish signal at its December 2024 interest rate meeting, suggesting that it may further raise interest rates to curb inflation. This policy shift has dampened the appeal of related assets, and MicroStrategy, which is a leveraged Bitcoin investment vehicle, has been particularly affected.

MicroStrategy's leveraged strategies amplify gains on the upside but also increase risk on the downside. Market concerns about its debt load and refinancing ability have intensified, especially if the price of Bitcoin falls, and the company may face greater financial pressure. Against the backdrop of a Bitcoin price correction and weakening market sentiment, MicroStrategy's narrative does appear to be challenged in the short term. Investors' concerns about its high premium and leverage risk intensified, causing the stock price to fall sharply.

Outlook

We can see that MicroStrategy's share price performance will remain highly dependent on the price of Bitcoin. Its status as the “crypto Fed” has been challenged in the short term by Bitcoin price corrections and changes in market sentiment, but its long-term potential still depends on Bitcoin’s price trends and the company’s capital operation capabilities. If Bitcoin prices return to their upward trajectory, MicroStrategy's narrative could regain support. Especially as Bitcoin is expected to be widely accepted as a store of value during Trump's term, his strategy of continuing to accumulate Bitcoin may still attract investors in the long term.

As investors rationalize MicroStrategy's valuation, deleveraging its stock price could bring it closer to the value of its Bitcoin holdings, rather than maintaining a high premium. This rationalization process may lead to further corrections in stock prices, but also provides long-term investors with better entry opportunities.

New accounting rules that will take effect in 2025 will allow MicroStrategy to report the value of its Bitcoin holdings at fair value, which may significantly increase its net income, attract more institutional investors, and even be included in the S&P 500 Index (but This is less likely). While MicroStrategy's share price performance may continue to be under pressure in the short term, its solid position as the largest corporate holder of Bitcoin still has some strategic significance in the market.

As of press time, MSTR's stock price was $300.01. As the Bitcoin market gradually picks up, market sentiment is also expected to be reflected in its price. If the Bitcoin market returns to an upward trend, MicroStrategy may once again be on investors' radar.