The narrative surrounding MicroStrategy’s (MSTR) stock has undergone a significant shift in recent weeks. Once touted as a leveraged play on bitcoin (BTC), traders have lost their enthusiasm for the Nasdaq-listed company, signaling a cautious change in market sentiment.
Market Sentiment Flips from Uber-Bullish to Neutral
A key indicator of this shift is the 250-day put-call skew, which has bounced to zero from -20% in just three weeks, according to data tracking website Market Chameleon. This metric measures the difference in implied volatility between puts (options to sell) and calls (options to buy). When call options are trading at parity with puts, it suggests that traders have lost their enthusiasm for achieving asymmetric upside gains from a potential rally in the underlying asset.
In other words, the market sentiment has flipped to neutral from extremely bullish. This is evident in the data, which shows that MSTR’s share price has declined by over 44% to $289 since hitting a record high of $589 on November 21st. Moreover, valuation has dropped 34% in the past two weeks alone, according to data source TradingView.
The End-of-Year Action: A Sign of Weakening Appeal
One reason for this decline could be that other companies are adopting bitcoin as a treasury asset strategy at a much smaller scale than MSTR. As Markus Thielen, founder of 10x Research, noted in a recent client note:
"With MicroStrategy shares now down 44% from their peak and other companies adopting bitcoin as a treasury asset strategy at a much smaller scale, the bitcoin tailwind generated by this narrative appears to be losing steam."
MicroStrategy began adding bitcoin to its balance sheet in 2020 and has since accumulated 446,400 BTC ($42.6 billion), often financing the purchases with debt sales. This significant accumulation made MSTR a leveraged bet on BTC, resulting in a 346% gain at the end of 2024, outshining BTC’s 121% rise by leaps and bounds.
However, the end-of-year action was disappointing. While MSTR fell by 25% in December, BTC fell by only 3%, holding relatively steady above $90,000. This sign indicates that MSTR’s appeal as a leveraged bet on BTC is weakening.
Investors Losing Appetite for MicroStrategy
Thielen noted further:
"The stock’s underperformance, despite substantial bitcoin acquisitions, indicates that investors are no longer willing to pay an implied price of $200,000 (or more) per bitcoin through MicroStrategy when it can be purchased directly at a much lower cost."
This sentiment shift is significant, as it suggests that traders are no longer confident in MSTR’s ability to generate returns through its accumulation of BTC. With other companies adopting similar strategies but on a smaller scale, the narrative surrounding MSTR has changed.
Conclusion
The market sentiment has flipped from extremely bullish to neutral, and investors are losing their appetite for MicroStrategy as a leveraged bet on bitcoin. This shift is evident in the data, which shows a decline of over 44% in MSTR’s share price since its record high in November. With valuation dropping 34% in the past two weeks alone, it appears that traders have lost their enthusiasm for achieving asymmetric upside gains through MSTR.
As Thielen noted, investors are no longer willing to pay an implied price of $200,000 (or more) per bitcoin through MicroStrategy when it can be purchased directly at a much lower cost. This cautionary signal is significant, as it suggests that traders are re-evaluating their strategies and losing confidence in MSTR’s ability to generate returns.
Recommendations
Based on the data and market sentiment analysis, we recommend that investors exercise caution when considering MicroStrategy as a leveraged bet on bitcoin. While the stock has generated impressive returns in the past, it appears that its appeal is weakening.
We suggest that traders consider alternative strategies or assets that offer more direct exposure to BTC without the associated risks of MSTR’s accumulation strategy. By doing so, investors can mitigate potential losses and achieve their investment goals with greater confidence.
Sources
- Market Chameleon
- TradingView
- 10x Research
- CoinMarketCap
