In the span of just a few short weeks, MicroStrategy has gone from market darling to cautionary tale. Shares of the enterprise software company turned Bitcoin evangelist are down a staggering 45% from their peak in late November, erasing tens of billions in market value. The collapse comes on the heels of the stock’s much ballyhooed inclusion into the Nasdaq-100 index – a development that was heralded as validation of CEO Michael Saylor’s audacious Bitcoin treasury strategy.
On the surface, it seems that MicroStrategy‘s wild ride may be coming to an end. The stock, once up 800% on the year and 5,000% since embarking on its Bitcoin buying spree in 2020, has seen a swift and dramatic reversal of fortune. Even after the recent rout, however, MSTR remains higher by more than 400% in 2024 alone. This begs the question – is this the beginning of the end, or merely another bout of volatility in the continuing saga of Saylor and MicroStrategy?
Riding the Reflexivity Rollercoaster
To understand the meteoric rise and precipitous fall of MicroStrategy, one needs look no further than the Soros Reflexivity Theory. Legendary investor George Soros coined the term to describe the two-way feedback loop between investor perception and market reality. In essence, Soros proposed that prices are often driven by inherently flawed human perceptions, which in turn can shape economic fundamentals in a self-fulfilling prophecy.
This blueprint fits MicroStrategy to a tee. The stock’s parabolic rise was fueled by a virtuous cycle of investor euphoria over its growing Bitcoin treasury, which granted the company greater access to cheap capital, which it then used to acquire even more Bitcoin. Rinse and repeat. The result was a blistering rally that defied all conventional valuation metrics.
As Soros would caution, however, reflexive processes are inherently unstable and prone to inflection points when sentiment shifts. For MicroStrategy, the first cracks emerged when the stock failed to make new highs even as Bitcoin soared to records in November. This negative divergence suggested the reflexive rally was running on fumes.
The Falling Knife
Fast forward to December, and the knife has fallen fast and sharp. The final catalyst appeared to be the Nasdaq-100 inclusion, which many investors treated as an opportunity to “sell the news.” Rather than propelling the stock to further heights, the index addition marked a major turning point that accelerated the nascent decline.
Suddenly, MicroStrategy finds itself in a reflexive spiral of the opposite kind – a vicious cycle of falling stock prices, eroded confidence in its Bitcoin gambit, and fresh scrutiny of its unconventional financial structure. With a loaded balance sheet and diminished flexibility to tap the markets, the company appears more vulnerable than ever to continued volatility in the price of Bitcoin.
The Saylor Faithful
Still, it would be imprudent to count out Michael Saylor and his merry band of Bitcoin disciples. This, after all, is not the first time that MSTR has experienced vertigo-inducing drawdowns. Saylor himself has shown an almost religious conviction in his Bitcoin evangelism, and his legions of followers have demonstrated a willingness to endure extreme volatility in the name of the cause.
Moreover, Saylor’s Bitcoin treasury strategy has inspired a growing contingent of copycats, from Semler Scientific to Metaplanet, who have hitched their wagons to the crypto train. While still a fringe movement in corporate America, this groundswell suggests that the MicroStrategy effect may endure even if the stock continues to struggle.
“If something cannot go on forever, it will stop.”
– Herbert Stein
In the final analysis, the fate of MicroStrategy may hinge on the durability of the narratives underpinning its valuation. As the economist Herbert Stein famously quipped, “If something cannot go on forever, it will stop.” The question facing investors is whether the reflexive belief in MicroStrategy‘s Bitcoin destiny has finally reached its limits.
One thing is for certain – the unfolding drama at the intersection of Bitcoin, tech stocks, and corporate finance has all the makings of a modern market fable. Only time will tell if Michael Saylor‘s bold experiment proves to be a stroke of genius or a spectacular folly. In the meantime, expect the wild ride in MSTR to continue.
