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Microstrategy’s Bitcoin investment was viewed as risky resulting in its downgrade by one of the largest banks in the world. However, the business intelligence firm’s massive BTC holdings actually buoyed its shares, which more than doubled in price since its December downgrade as the crypto rallied to new heights.
Citigroup downgraded Microstrategy’s (MSTR) stock from Neutral to Sell on December 8, 2020, Seeking Alpha reported. The bank viewed the company’s “disproportionate focus on bitcoin” as risky causing MSTR’s shares to tumble after the announcement of its downgrade.
However, Microstrategy shares quickly bounced back and rose by 118 percent less than two months after the downgrade. Thanks to Bitcoin’s rally, the company’s shares rose from $289.45 in December to $631.26 at the time of writing based on data from MarketWatch.
Back when Citigroup made its decision to downgrade Microstrategy, the bank explained that it believed that Bitcoin’s rally was already overextended at that time. Citi also mentioned that the market overpriced both MSTR and BTC.
“MSTR's bitcoin investment has returned $250M (or worth $26/share or +20% towards stock) since August '20,” Citi analyst Tyler Radke said. “While impressive, it pales in comparison to the 172% return in the stock. At the current stock price, our analysis suggests that the market is pricing in much more optimistic valuation scenarios for the core business and Bitcoin.”
A day before its downgrade, Microstrategy announced its intention to acquire more Bitcoin. On December 7, the firm said that it plans to raise up to $400 million via the issuance of senior convertible notes.
“MicroStrategy intends to invest the net proceeds from the sale of the notes in bitcoin in accordance with its Treasury Reserve Policy pending the identification of working capital needs and other general corporate purposes,” the business intelligence firm said in an announcement.
Bitcoin, which traded at above $19,000 when Citigroup downgraded Microstategy, continued its rally in January. In fact, the crypto even posted a new all-time high last month when BTC traded above $41,000.
“Going forward, we continue to plan to hold our bitcoin and invest additional excess cash flows in bitcoin,” Microstrategy CEO Michael Saylor wrote in the fourth quarter financial results for 2020. “Additionally, we will explore various approaches to acquire additional bitcoin as part of our overall corporate strategy.”
MicroStrategy is one of the firms that are holding Bitcoin as a treasury reserve asset. The firm has over 70K BTC valued at around $2.4 billion making it the biggest public company holder of the crypto.
