MicroStrategy's Bitcoin Bet Falters Amid Crypto Correction

Shares of MicroStrategy, a business intelligence firm, have fallen approximately 16% year-to-date (YTD) amid a significant correction in the price of Bitcoin (BTC). The stock's abrupt sell-off has raised questions about the sustainability of the company's Bitcoin buying spree, which has been a key driver of its performance.

On February 25, BTC's price dropped around 4% to around $88,000, contributing to the decline in MicroStrategy's stock. The company's strategy is largely contingent on its ability to raise additional capital backed by its growing Bitcoin treasury. However, market analysts have raised concerns about the potential risks associated with this strategy, particularly if the company's liabilities rise significantly higher than its assets.

Despite these concerns, stock analysts remain bullish on MicroStrategy's prospects for a rebound. On February 6, analysts at Benchmark raised the company's price target to $650, citing confidence that MicroStrategy will continue to aggressively raise capital to fuel its Bitcoin acquisition strategy during the balance of the year.

Since 2020, MicroStrategy has spent upward of $33 billion buying BTC at an average cost of around $66,000 per coin, earning an unrealized profit of more than $10 billion. The company financed these buys with a blend of stock issuance and around $9.5 billion in convertible debt, with virtually none of the debt maturing until 2027 or later. This significantly reduces the risk of a short-lived BTC price drawdown forcing MicroStrategy to liquidate Bitcoin holdings.

On February 25, Bitcoin fell below the $90,000 mark for the first time since November 2024 amid ongoing sell-offs in US spot Bitcoin exchange-traded funds (ETFs). The same day, shares of MicroStrategy fell by more than 10% to approximately $245. The stock is down nearly 50% from all-time highs of $473 in November, shortly after the company unveiled its ambitious goal of buying $42 billion worth of Bitcoin by 2027.

Other companies following similar Bitcoin treasury strategies saw comparable retraces. Semler Scientific, which started buying BTC in 2024, is down more than 20% in the year-to-date