In retrospect, it was inevitable.
Down more than 8% and holding just above $300 on Monday, MicroStrategy (MSTR) stock is now about 30% lower since shortly after the announcement of its inclusion in the Nasdaq-100 index and almost 50% from its all-time high at the end of November.
Signs of at least a major near-term top in former barely-known enterprise software company turned giant Bitcoin Development Company MicroStrategy were everywhere.
The first of those signs was the skyrocketing stock price: At its high of $543 in late November, MSTR is up nearly eight-fold in 2024 and has surpassed 50 exchanges since the company began buying bitcoin (BTC) in August 2020.
There was also founder and CEO Michael Saylor, who was never shy about promoting his company’s prospects and evangelizing for Bitcoin, who by the end of this year had somehow become even more ubiquitous in the financial news carousels, podcasts and social networks.
It wasn’t just the constant appearances, but subtle changes in Saylor’s attitude toward what American sports fans might charitably describe as “spiking the ball” after a touchdown. Among them was the constant promotion of the “bitcoin performance” key performance indicator, invented by MicroStrategy, which recalled invented metrics from the Internet bubble in the late 1990s, such as “page views.” His company, flush with cash from equity and convertible debt sales, Saylor, for unknown reasons, late in the year also got into the habit of triggering announcements of major new bitcoin purchases on the Sunday before the official filing with the regulator on Monday morning.
And then came the appearance of imitators. Despite years of obvious success of Saylor’s bitcoin treasury strategy, there was a distinct lack of other publicly traded corporations adopting the same. Yes, some, even large-cap companies like Tesla, led by Elon Musk, and Square, led by Jack Dorsey, had dipped their toe into acquiring bitcoins. However, no other prominent company was willing to not only adopt bitcoin as its primary treasury asset, but also tap into markets willing to raise additional capital to accumulate tokens.
That changed considerably this year, however, with small-cap medical device maker Semler Scientific, Japanese hotel operator Metaplanet and several bitcoin miners among those adopting Saylor’s vision, each earning the Saylor applauds on social media with each capital raise. and bitcoin purchase announcement.
If something can’t go on forever, it will stop.
Not content with being perhaps the greatest trader of all time and amassing many billions of dollars, George Soros wanted to be known as a great thinker. It’s no coincidence that his trading masterpiece – Reflexivity Theory – sounds suspiciously similar to a famous theory by a colleague 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 erroneous, since humans are fallible) can not only influence prices, but literally creates its own reality, i.e. 1) investors believe that a stock will go up because prices Earnings are about to get a big boost, 2) the share price rises, 3) the high share price allows management to raise capital at a cheaper cost than otherwise, 4) this improves earnings, 5) the stock price still rises plus, 6) the bulls pat themselves on the back for their brilliance and winning converts,… and so on.
If you strip away much of Soros’ philosophy, this is also known as a virtuous circle, which MicroStrategy surely found itself in in 2024. Part of Soros’s trading genius was recognizing these circles when they were happening and jumping into them, in size. Another part of his genius was figuring out when the circles were about to break and exiting or even betting against them.
“If something can’t go on forever, it will stop,” said the late economist Herb Stein, who at the time was talking about government budget and trade deficits. It turns out that Stein’s Law was equally applicable to MicroStrategy stock.
Scoreboard: continues to show notable progress
MicroStrategy, which changed hands at about $430 just after the December 14 announcement of its upcoming inclusion in the Nasdaq-100 index, is now selling for just over $300, a drop of about 30% in just two weeks .
Looking back, there appear to have been cracks in the MicroStrategy bubble three weeks earlier. Shares reached a high of around $543 on November 21. Despite bitcoin’s continued rise through late November and early December to a final high of over $108,000, MSTR lost ground in what technicians might call a worrying negative divergence. At the current $300, MicroStrategy is currently suffering a 45% drop in about five weeks.
MSTR stock has still been a notable performer in any period except that very small time period. They remain higher by more than 400% so far this year and approximately 20 times since the time Saylor began bitcoin purchases in August 2020.
While bears might say the fall is still far away, bulls would surely point out that during MSTR’s run since August 2020, the stock has suffered a series of similarly terrifying short- and medium-term declines and has always resolved to the upside.
What would Soros say? You might remember that his Theory of Reflexivity taught that prices can rise more (both up and down) than most would expect.
