Investment firm Kerrisdale Capital has recently initiated a short position against MicroStrategy, the company led by Bitcoin advocate Michael Saylor. The firm argues that MicroStrategy’s stock price is excessively inflated relative to the actual value of its Bitcoin holdings. This move highlights growing skepticism among investors regarding the sustainability of MicroStrategy's market valuation, which appears significantly detached from the underlying Bitcoin asset value.

Sahm Adrangi, Chief Investment Officer at Kerrisdale Capital, provided insight into the rationale behind their strategy. He simplified MicroStrategy’s business model to six words: “They own X amount of Bitcoin.” Adrangi and his colleagues at Kerrisdale believe that this fundamental aspect alone does not justify the premium at which MicroStrategy’s stock trades. According to Kerrisdale’s March report, MicroStrategy’s stock price implies a Bitcoin value that is approximately two and a half times the current market price.

Adrangi elaborated on this discrepancy by breaking down MicroStrategy's financial operations. He stated, “The software business is worth a billion, maybe a billion [point] five, somewhere in between — it’s not worth very much. Michael Saylor has bought all this Bitcoin. If he wants to buy more Bitcoin, he issues $1 billion of debt and buys $1 billion more Bitcoin. It doesn’t increase the enterprise value of the company.” This approach means that the company's value fluctuates directly with Bitcoin prices. Kerrisdale’s strategy is to “go short MicroStrategy, go long Bitcoin,” betting that MicroStrategy’s stock price will eventually correct to reflect Bitcoin’s true market value.

Michael Saylor's aggressive Bitcoin acquisition strategy began in 2020. Under his leadership, MicroStrategy has amassed 226,331 BTC, spending $8.3 billion to acquire these holdings, now valued at $14.6 billion. While this represents a substantial unrealized profit, Adrangi is not impressed. He points out that MicroStrategy’s investment strategy lacks sophistication, stating, “There’s not much in terms of MicroStrategy’s history that demonstrates it’s especially good at buying low and selling high. Ultimately [Saylor] just buys Bitcoin at different times. And you can buy Bitcoin at different times.”

Kerrisdale Capital, known for its critical research and short-selling strategies, has broadened its focus to include cryptocurrency-related companies. Besides MicroStrategy, the firm has targeted Bitcoin mining companies such as Riot, labeling its business model as one of the worst for a public company. This approach has drawn significant criticism from the crypto community, which tends to fiercely protect its key players. Despite this, Adrangi remains confident in Kerrisdale’s research, believing that the market will eventually validate their position.

Zackary Morris, a research analyst at Bitcoin financial services firm Onramp, echoes some of Kerrisdale’s concerns. He notes the volatility and unpredictability of MicroStrategy’s stock price relative to its Bitcoin holdings. Morris suggests that traditional fundamental analysis might not be the best approach for evaluating MicroStrategy, given its tendency to trade at multiples of its Bitcoin value. “Maybe fundermentalsss [sic] are not the best place to start formulating a thesis on MicroStrategy,” he wrote.

Despite Kerrisdale’s mantra of “go short MicroStrategy, go long Bitcoin,” Adrangi does not view Bitcoin itself as a sound investment. He criticizes the speculative nature of Bitcoin, describing it as a “get-rich-quick scheme” driven by a desire for quick wealth rather than genuine investment principles. “I’m just personally not sympathetic for all of this energy usage for the purpose of fueling speculation over this made-up fantasy land asset,” he remarked. “At the end of the day, Bitcoin is just one big get-rich-quick scheme.”

Kerrisdale Capital’s stance reflects broader market skepticism about MicroStrategy’s valuation and its close ties to Bitcoin’s volatile price. As the crypto market continues to evolve, investors will be watching closely to see if MicroStrategy’s stock price aligns more closely with the value of its Bitcoin holdings.