Bitcoin daily
Bitcoin is up 4.5% today as it erases the past two days of selling. It’s a nice move but leaves it right back to where it’s been for the past eight months. Wake me up when it breaks the $50-70K range.
What does have my attention today is Microstrategy, which is one of the easiest companies in the world to value. The reason is that it has 97% of its assets invested in bitcoin.
Despite that, it’s trading at an all-time high today and up 12%.
MSTR daily
That’s a big disconnect between the value of the company’s bitcoin holdings and the company itself. Shares are trading at 2.5 times the value of its bitcoin holdings, which is non-sensical and breaks matches the highs from Feb 2021 — a time when markets were euphoric.
According to CoinDesk, it’s bitcoin holdings are worth $15.1 billion and its market cap was $37.14 billion yesterday before including today’s massive rally.
Something is amiss here.
I suspect a fund that could be long bitcoin and short MSTR is puking out the position.
One firm, Kerrisdale Capital has publicized that strategy in the past:
None of the reasons commonly provided for MicroStrategy’s relative
attractiveness justify paying well over double for the same coin.
MicroStrategy’s trading history and basic common sense suggests the
current inflated premium will contract, much as it has on prior
occasions, providing a compelling opportunity for a pair trade.
Now I doubt that firm is big enough to move the market so much but the strategy looks like such low-hanging fruit that others were surely drawn in as well.
If bitcoin was breaking out, I would expect that premium to expand but it’s only up 4.5% today and still a ways from $70K. Maybe the MSTR market is front-running a breakout?
It’s possible but something is off here and it has my attention. I don’t think it’s the time to short MSTR right now because that chart is really breaking out but at some point that premium to NAV needs to narrow and I don’t think that’s far off. In the meantime, watch how far this squeeze runs and it potentially becomes a meme.