Bitcoin rises, Strategy falls: is the MSTR leverage boom over?

For anyone who thinks Bitcoin isn't volatile enough, Strategy (formerly MicroStrategy) offered an attractive alternative for years.

For anyone who thinks Bitcoin isn't volatile enough, Strategy (formerly MicroStrategy) offered an attractive alternative. The company acted as a lever for Bitcoin investors: when BTC rose, MSTR often moved twice as hard. But that formula now seems to be faltering.

While Bitcoin is up 7.9% over the past month, Strategy shareholders are facing a 4.6% loss. Has the legendary Bitcoin bull Michael Saylor gone too far?

The world's largest Bitcoin vault

With as many as 580,250 BTC on the balance sheet, worth about $60 billion, Strategy still holds the world's largest Bitcoin reserve. This week alone it bought another 705 BTC. Saylor's mission is clear: “Buy the dip, repeat.”

Yet the stock price lags. The correlation between MSTR and BTC is still strong, but the leverage effect is missing. Analysts warn, however: this looks like a temporary mismatch. If you extend the horizon, you may see buying opportunities reappear.

Opportunity for a new wave of buying

Interesting is that Strategy's market value premium, the so-called mNAV (market cap relative to the value of the BTC holdings), is currently at a historically low level of 1.7. In January it was above 3.5. In investor jargon: MSTR is relatively cheap.

Saylor seems to see that too and is getting ready for the next capital infusion. This week he announced the creation of a new equity vehicle: Stride (STRD), which will complement the existing structures Strike (STRK), Strife (STRF) and MSTR. Stride involves the issuance of 2.5 million preferred shares at $100 each, with a dividend of up to 10 percent. The proceeds? They go straight to buying more Bitcoin.

But watch out: plenty of risks

But Strategy is anything but a zero-risk investment. The debt pile is growing, while regular cash flow is too limited to pay it down quickly. Moreover, MicroStrategy is no longer the only player using BTC as a corporate treasury. The Japanese former-hotel group Metaplanet is following Saylor's lead and now owns 7,800 BTC. With a monthly price jump of 151%, the newcomer even makes MicroStrategy look bad in that regard.

Finally, a recent selling wave within the board raises concerns. Jarrod M. Patten, a board member, sold 9,550 MSTR shares in late May at prices between $364 and $372. Equating to roughly $3.5 million. The signal? Not exactly a sign of strong confidence in the stock's potential.