In retrospect, it was inevitable.
Down more than 8% and holding just above $300 on Monday, MicroStrategy (MSTR) shares are now lower by about 30% since just after the announcement of their inclusion into the Nasdaq-100 index and nearly 50% from their late November record high.
The signs of at least a major short-term top in one-time barely known enterprise software company turned juggernaut Bitcoin Development Company MicroStrategy were everywhere.
First among those signals was the rocketing stock price — at its high of $543 in late November, MSTR was up nearly eight-fold in 2024 and more than a 50-bagger since the company began buying bitcoin (BTC) in August 2020.
There was also founder and Executive Chairman Michael Saylor — never shy about promoting his company’s prospects and evangelizing for Bitcoin — who late this year had somehow become even more ubiquitous on the financial news, podcast and social media carousels.
It wasn’t just the constant appearances, but subtle changes in Saylor’s attitude to what might charitably be described by U.S. sports fans as “spiking the football” following a touchdown. Among them was the constant promotion of the MicroStrategy-invented key performance indicator of “bitcoin yield,” which recalled late 1990s made-up internet bubble metrics like “page views.” His company flush with cash from share and convertible debt sales, Saylor — for reasons unknown — late in the year also got in the habit of teasing announcements of sizable new bitcoin purchases on the Sunday prior to the official regulatory filing on Monday morning.
And then there was the emergence of copycats. Despite years of the obvious success of Saylor’s bitcoin treasury strategy, there had been a decided lack of other publicly traded corporates adopting the same. Yes, a few — even large-caps like the Elon Musk-led Tesla and Jack Dorsey-led Square — had dipped their toes into bitcoin acquisition. No other company of note, though, was willing to not only adopt bitcoin as their main treasury asset but take advantage of willing markets to raise additional capital with which to accumulate tokens.
That changed in a sizable way this year however, with small cap medical device maker Semler Scientific, Japan hotel operator Metaplanet, and a number of bitcoin miners among those embracing the Saylor vision — each of them earning social media plaudits from Saylor with every capital raise and bitcoin purchase announcement.
Not content with being maybe the greatest trader ever and accumulating many billions of dollars, George Soros wanted to be known as a great thinker. It’s no coincidence that his magnum opus on trading — the Theory of Reflexivity — sounds suspiciously similar to a famous theory from a fellow named Einstein.
Soros explained that investor perception and its effect on prices is a constant two-way street. In this way, perception (which is often wrong, as humans are fallible) can not just influence prices, but literally create its own reality, i.e. 1) investors believe a stock will go higher because earnings are about to get a big boost, 2) the stock price goes higher, 3) the high stock price allows management to raise capital at a cheaper cost than otherwise, 4) this improves earnings, 5) the stock price goes even higher, 6) the bulls pat themselves on the back for their brilliance and win over converts, … and so on.
Strip away much of Soros’ philosophy and this is also known as a virtuous circle, in which MicroStrategy had surely found itself in 2024. Part of Soros’ trading genius was recognizing these circles when they were happening and jumping on — in size. Another part of his genius was figuring out when the circles were about to break and getting out or even betting against them.
“If something cannot go on forever, it will stop,” said the late economist Herb Stein, who at the time was talking about government budget/trade deficits. Stein’s Law, it turns out, was equally applicable to MicroStrategy shares.
Changing hands at about $430 just after the Dec. 14 announcement of its coming inclusion into the Nasdaq-100 Index, MicroStrategy is now selling at just above $300, a decline of roughly 30% in just two weeks.
Looking back, there appear to have been cracks in the MicroStrategy bubble three weeks earlier. The stock peaked at about $543 on Nov. 21. Despite bitcoin’s continued rise through late November and early December to an ultimate high above $108,000, MSTR lost ground — what technicians might call a troubling negative divergence. At the current $300, MicroStrategy for the moment is suffering a peak-to-trough drop of 45% in about five weeks.
MSTR shares have still put in a remarkable performance under anything except that very tiny time frame. They remain higher by more than 400% year-to-date and about 20-fold from the time Saylor initiated bitcoin purchases in August 2020.
While the bears might thus say the plunge has far to go, the bulls would surely point out that during MSTR’s run since August 2020, the stock has suffered a number of similar scary short-to-medium term declines and has always resolved higher.
What would Soros say? Just possibly, he would remind that his Theory of Reflexivity taught that prices can go further (both upward and downward) than most could possibly expect.
