Hedge Fund Bets on Bitcoin, Shorts MicroStrategy

Long Bitcoin, Short MicroStrategy

Kerrisdale Capital, a hedge fund, is betting that Bitcoin will rise while MicroStrategy shares will fall. They believe MicroStrategy, which invests heavily in Bitcoin, is overpriced compared to Bitcoin itself.

MicroStrategy’s Premium

Kerrisdale says MicroStrategy’s stock price suggests Bitcoin is worth over $177,000, which is more than double its current market value. They argue that this premium is not justified.

MicroStrategy’s Business

Kerrisdale believes MicroStrategy’s software business is no longer a significant part of its value. They say the company’s Bitcoin holdings are the main driver of its valuation.

MicroStrategy’s Premium Over Net Asset Value (NAV)

MicroStrategy’s stock is trading at a premium of 2.6 times its NAV. Kerrisdale says this premium is unusually high and unsustainable.

MicroStrategy’s Financial Strategy

Kerrisdale warns that MicroStrategy’s use of leverage and dilutive financing mechanisms has increased its Bitcoin holdings but has also diluted the amount of Bitcoin per share.

Kerrisdale’s Conclusion

Kerrisdale estimates that if MicroStrategy’s premium falls to a more historical level, its stock could drop by 50% relative to Bitcoin’s performance.

Community Reactions

Some crypto analysts criticized Kerrisdale’s position, saying that markets can be irrational and that it’s risky to publish trade ideas publicly.