MicroStrategy (NASDAQ:MSTR) shares blasted 58% in November, buoyed by Bitcoin’s recent price surge, with Donald Trump’s electoral victory further fueling the rally. Even with a 20% pullback since November 20, MSTR has still skyrocketed an eye-popping 502% in 2024.
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At this point, the company is not showing any sign that it intends to move away from Bitcoin. On the contrary, MSTR has recently announced its 21/21 plan, whereby the company will raise $21 billion of both debt and equity to finance the purchase of more Bitcoin.
Should those bullish on Bitcoin be loading up on MSTR? One investor known by the pseudonym Hataf Capital thinks this would be a very bad idea.
“While the cryptocurrency market’s momentum is powerful, particularly in the wake of Trump’s victory, the fundamental disconnect between price and value has become too extreme to ignore,” argues the investor.
Hataf points out that MSTR investors are effectively paying $245,000 per Bitcoin – a staggering 156% premium over Bitcoin’s current market price of $95,600. This means each dollar invested in MSTR translates to only 39 cents of actual Bitcoin exposure, highlighting the steep premium embedded in the stock’s valuation.
Hataf also raises concerns about MicroStrategy’s C Corporation status, which subjects any profits from its Bitcoin strategy to corporate tax. Shareholders would then face additional capital gains taxes upon selling their shares.
“When these gains are reflected in the stock price and shareholders sell their shares they will pay additional capital gains tax on their stock appreciation,” says the investor, adding that there are other Bitcoin products which possess more tax efficient structures.
Adding to the skepticism is the potential impact of the 21/21 plan. Hataf warns that issuing $21 billion in equity would dilute existing shareholders, while taking on $21 billion in debt would burden the company with significant interest obligations.
“For investors seeking bitcoin exposure, I recommend either direct bitcoin purchases or ETF alternatives like IBIT,” Hataf concludes, assigning a Sell rating to MSTR shares. (To watch Hataf Capital’s track record, click here)
Hataf’s pessimism does not seem to be reflected on Wall Street. With 8 Buy recommendations and no Holds or Sells, MSTR boasts a Strong Buy consensus rating. Its 12-month average price target of $494 implies ~30% upside from current levels. (See MSTR stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
