Bitcoin whale MicroStrategy sees its stock plunge after Citron bets against it

MicroStrategy took a massive hit on Thursday after Citron Research revealed it’s betting against the company. The stock dropped by as much as 10% in intraday trading, reversing earlier gains of nearly 15%.

Citron described the company’s Bitcoin-heavy strategy as detached from reality, effectively calling out its transformation into a Bitcoin investment vehicle. MicroStrategy’s stock had already soared 650% this year, fueled by Bitcoin’s record-breaking run. But the cracks are beginning to show.

Michael Saylor, MicroStrategy’s chairman, has tied the company’s entire identity to Bitcoin. Once a basic software company, MicroStrategy now owns over 331,200 bitcoins, valued at $31.2 billion. To finance these purchases, the company has sold debt, stock, and sometimes, apparently, dreams.

Investors were along for the ride, but now, with Bitcoin exchange-traded funds (ETFs) in the picture, MicroStrategy’s role as a Bitcoin proxy is being questioned.

Citron drops the hammer

Citron Research, led by Andrew Left, pointed out that Bitcoin investing has never been easier, thanks to ETFs. “While Citron remains bullish on Bitcoin, we’ve hedged with a short $MSTR position,” the firm said. In simple terms: Citron likes Bitcoin but thinks MicroStrategy’s stock is overhyped and ready to tumble.

Bitcoin soared past $98,000 on Thursday, pushing MicroStrategy’s market value over $100 billion. For perspective, that’s enough to place it among the top 100 companies in the S&P 500.

Back in March, Kerrisdale Capital also suggested shorting MicroStrategy while holding Bitcoin, pointing out that the company’s value is downright irrational. “Much respect to Saylor, but even he must know $MSTR is overheated,” said Citron.

Though Andrew Left isn’t exactly riding high these days. He’s currently facing securities fraud charges from the U.S. Securities and Exchange Commission (SEC).

In July, the SEC accused him of manipulating stocks, a charge he denies. In October, he asked a judge to dismiss the case. But even with this legal cloud, Citron hasn’t stopped making bold calls. In September, the company posted about its past bets on private prisons.

BTC yield: The most MicroStrategy thing ever

If there’s one thing MicroStrategy loves, it’s Bitcoin. If there’s a second thing, it’s inventing wild metrics to justify its obsession. Enter “BTC yield.” First introduced in August, this metric supposedly measures the percentage change in how many bitcoins MicroStrategy owns per 1,000 shares.

By November 17, the company claimed a BTC yield of 41.8%, up from 26.4% in September, and 0.91 bitcoins per 1,000 shares in December 2023.

Does that sound impressive? Sure. Is it useful? Not really. BTC yield doesn’t measure dividends, profits, or anything that makes traditional investors care. It just shows how aggressively MicroStrategy has been swapping stock for Bitcoin.

If Bitcoin’s price tanks tomorrow, BTC yield stays flat. Meanwhile, MicroStrategy’s stock would collapse. Critics argue it’s a rearview metric—great for saying “look how far we’ve come,” but useless for figuring out where things are going.

Saylor, ever the Bitcoin evangelist, doesn’t care. He’s all-in on BTC yield as proof his strategy works. To fund more Bitcoin buys, MicroStrategy plans to raise $42 billion over three years, split between equity and debt. That’s a lot of zeros for a company whose actual business (software) is basically an afterthought.

Now let’s talk numbers. MicroStrategy’s market cap is $106 billion. It paid about $16.5 billion for the Bitcoin it owns. The math doesn’t add up, unless you believe a Bitcoin owned by MicroStrategy is worth four times as much as one owned by everyone else. That’s the stock market for you—completely irrational when things get hot.

Here’s the cycle: MicroStrategy sells overpriced stock, uses the cash to buy Bitcoin, which boosts its stock price even more. Investors love a winning streak, so they keep buying, driving prices higher. It’s a loop that works until it doesn’t. Citron’s short bet is basically a bet that this loop is about to break.

MicroStrategy is fine with the chaos. Its leadership seems to believe Bitcoin is going to the moon, and they’re ready to buy every last coin on the way up. But if Bitcoin’s price crashes, MicroStrategy won’t be able to hide behind BTC yield or its inflated market cap. Investors will bail, and the house of cards will collapse.

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