After MicroStrategy Falls Off a Cliff, Just Buy Bitcoin Through a Brokerage

All over the place. That's where the shares of MicroStrategy MSTR trade. I'm so old that I still remember when the firm was described as a mobility, analytics and security software provider. What the firm has become, primarily, is a holder of bitcoin. With its rallies and sell-offs, while there are exceptions such as the recent sell-off on the Citron Research report, the stock has tended to follow trends in the value of the world's most famous and best-known cryptocurrency.

Just this week, MicroStrategy priced a private offering of $2.6 billion worth of convertible senior notes due in 2029. Demand was so strong that the offering had been upsized from $1.75 billion and will not bear regular interest. Additionally, the firm granted to initial buyers of these notes a three-day option to purchase up to an additional $400 million worth in aggregate principal value. That could take the total net proceeds from the sale up to a potential $2.97 billion.

The notes will be convertible into cash and shares of MicroStrategy Class A stock or some combination of the two. So, it came to pass that MicroStrategy was able to borrow almost $3 billion at 0%. MicroStrategy periodically borrows large sums of U.S. currency from public investors and buys huge sums of bitcoin with the funds. Earlier this week, Yahoo Finance reported that MicroStrategy had 331,200 bitcoin tokens in inventory purchased at an average price of $49,874. At $98,000 a piece, that comes to bitcoin holdings of $32.4576 billion. As of the firm's most recent balance sheet release, this made up 70% of the firm's current assets. Only in America, my friends.

Then Came This

The shares MicroStrategy fell off a cliff on Thursday, giving back 16.2% to close at $397.28 for the day after trading as high as $543 per share shortly after the opening bell. An almost $150 per share peak through close sell-off intraday? How?

Citron Research of Andrew Left fame, referred to the stock of MSTR as "overheated" and stated that the stock's volume had "completely detached from BTC (bitcoin) fundamentals." Citron Research made clear that they themselves are still bullish on bitcoin but has hedged that bet with a short position in MSTR.

Since the Start of September

Bitcoin has done this versus the U.S. dollar. Readers can see that while the token reaches for the elusive $100,000 level and tries to break out of pretty neat looking Andrews' pitchfork model, that both the reading for relative strength (relative to what?) is entrenched in technically-overbought territory. The daily MACD also appears to be more than a bit stretched.

Readers will see that while MSTR has traded in a much narrower range over time, producing a skinny pitchfork model that, until this week's breakout, the stock had largely remained on trend. Even with the Cintron report, their stock was only drawn back to trend. The numbers are cartoon-like so it looks ridiculous, but all Thursday did was bring MSTR back to where it probably should be.

My Thoughts

I don't own bitcoin. I don't own MicroStrategy. I am something of a gold bug. So, younger traders looking to discredit my thoughts here, there is your ammo. That said, I have traded both bitcoin and ethereum on and off through funds and trusts, but never directly. I remain long physical gold and silver and multiple ETFs that include both of those metals in their holdings.

Contrary to what readers might think, I am not anti-crypto, or at least I have not been for a while. I certainly missed the move of the past couple of months, but one lives and learns. There is certainly a future for cryptocurrency, especially bitcoin, and especially with the new Trump administration about to transition into power.

I think a trader or an investor with a regular cash account at a broker-dealer could invest in MicroStrategy as a proxy for bitcoin itself, but why bring Michael Saylor into it? I would rather either invest in a bitcoin fund or open an account at a reputable cryptocurrency brokerage and own the coins directly. I would not do anything in either the coin nor in MicroStrategy on margin. That's asking for trouble. Short MSTR? A bear put spread would be a much more risk-averse idea.

As for today, I would not trust the early rally in MSTR. This is a weekly options expiration day and who knows where the gamma is on this thing after what happened on Thursday. Bitcoin? Maybe I get myself long an entry-level sized position should it fall to its 21-day EMA or should its 21-day EMA catch up to the spot price. Otherwise, I'll remain on the sidelines and think about my old Cold War adversary (and later friend) who started getting long bitcoin at $240.

At the time of publication, Guilfoyle had no positions in any securities mentioned.