Andrew Bary

MicroStrategy stock is down over 50% from its November highs as the so-called Bitcoin premium leaks out of the company, the largest corporate holder of the cryptocurrency.

If this trend continues, MicroStrategy may need to reassess its aggressive Bitcoin acquisition strategy.

While the company also owns a small software business, its shares largely trade in line with the cryptocurrency because of its sizable investment. Just last week, MicroStrategy, which prefers to be known as Strategy, bought $2 billion of the cryptocurrency with the proceeds of a $2 billion convertible bond deal, bringing its total holding to 499,096 Bitcoin, more than 2% of the total Bitcoin outstanding.

The drop in MicroStrategy stock lately has come as Bitcoin prices have declined. The cryptocurrency slid about 1% Wednesday morning to around $87,500, relative to Tuesday morning's price. After hitting nearly a four-month low earlier Wednesday session, the stock recovered, gaining 1.4% to $254.

The stock peaked at $543 on Nov. 21, after more than doubling following the Nov. 5 election of President Donald Trump and the broad rally in cryptocurrencies that triggered.

The recent selloff in MicroStrategy stock, however, has been notably steeper than Bitcoin's, reflecting the company's financial leverage and its tendency to move more than Bitcoin in percentage terms on the way up and down. Bitcoin is down about 20% from its January high of close to $108,000.

Barron's estimates that the MicroStrategy's so-called Bitcoin premium -- the ratio of the company's value to its Bitcoin holdings -- has declined. The stock now trades at about 1.7 times the Bitcoin value, from a peak of three times in late November, we estimate.

Before 2024, the company traded at close to parity with its Bitcoin holdings, making last year's large premium an anomaly. Barron's highlighted the risk in MicroStrate gy in early December when the stock traded near $400 and for 2.5 times the value of its Bitcoin.

Here is the math behind the premium. The company has 260 million shares outstanding now worth about $65 billion plus roughly $8 billion of convertible debt, and a software business worth about $1 billion. It also has about $650 million of preferred stock outstanding. The company's Bitcoin holdings are now worth about $43 billion.

With the premium contracting, it becomes less advantageous for MicroStrategy to acquire Bitcoin. The company measures this through what it calls Bitcoin yield, or the percentage change in its Bitcoin holdings relative to its shares outstanding.

The company puts its Bitcoin yield at 6.9% so far in 2025. It was 74% last year.

It's possible that the premium will continue to contract if investors continue to cool on the stock and balk at the still-sizable premium. The company has been on a Bitcoin buying tear since the end of the fourth quarter, doubling the size of its Bitcoin holdings using proceeds from stock, bond and preferred stock sales, spending close to $25 billion.

The company's most recent Bitcoin purchases came at an average price of about $97,500. With the recent drop in Bitcoin, MicroStrategy's gains on its Bitcoin holdings are eroding, as its average cost is about $66,300.

Write to Andrew Bary at andrew.bary@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

February 26, 2025 12:28 ET (17:28 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.