MSTR - The most successful "investment bank" in financial history, or the most reckless?

As Bitcoin approaches $100,000 and sets a new record, "Bitcoin whale" MicroStrategy (MSTR) has experienced a terrifying moment: its stock price once plummeted by 30%.

Yesterday, MSTR continued its previous surge in the morning session, soaring 14% to reach an all-time high of $543. However, MSTR's stock price reversed dramatically during the session, retreating more than an astonishing 31% from its peak, ultimately closing down over 16%.

At the height of Bitcoin's frenzy, MSTR's "wealth creation myth" suffered a heavy blow. Wall Street Journal mentioned the "symbiotic relationship" between MSTR and Bitcoin: by issuing stocks and bonds to finance Bitcoin purchases, it drives up Bitcoin prices, and the rise in Bitcoin further boosts MSTR's stock price.

However, this relationship suddenly broke down last night, signaling what? Is MSTR's plunge a temporary adjustment or a sign of a storm brewing?

On November 20, Cullen Roche, founder of the fund company Discipline Funds, commented that MSTR might be the most successful "investment bank" in the world; it is either the greatest achievement in financial history or the most reckless thing.

In Roche's view, MSTR's aggressive buying of Bitcoin has indeed been very successful, but to some extent, it looks very much like a Ponzi scheme. If it were him, "he would definitely want to pack up and leave, declare victory, and then go buy... anything he wants."

Currently, Citron Research is shorting MSTR and claims that the company has effectively turned into a Bitcoin investment fund. While they have great respect for MSTR CEO Saylor, he must also know that MSTR has overheated.

Soaring 3000%! The most successful stock in the past 5 years, is it time for MSTR to declare victory and exit?

Roche discussed the relationship between MSTR and Bitcoin on his website and pointed out in a half-joking tone that the company's approach is extremely clever yet extremely risky. To some extent, it looks very much like a Ponzi scheme.

Is MSTR the most successful "investment bank" in financial history, or the most reckless? Roche is puzzled but hints that this may be the moment for Saylor to declare victory and exit

Speaking of MicroStrategy—I really can't stop falling in love with this story. I've been saying for many years now, this is either the greatest thing in financial history or the most reckless thing. I don't know which it is, but to me, there really is no middle ground. In some ways, it looks a lot like a Ponzi scheme. MSTR finances its Bitcoin purchases by selling bonds, and these purchases drive up the price of Bitcoin, which in turn allows MSTR to issue more bonds. It's all very clever, as long as the price of Bitcoin continues to rise, the glory can continue. As long as it keeps going up.

I have joked that MSTR has become the most successful investment bank in the world, except they are not helping with capital formation; they are financing the "digital rise." Look, so far, this approach has indeed been very successful. Saylor (CEO of MSTR) has won. In fact, you could even say he has won. Now he can exit and declare, "I have won the entire financial industry forever." MSTR has risen 3000% over the past 5 years. It makes one wonder—if Saylor is right, and the cost of capital is 15% per year, then the returns MSTR has generated over the past 5 years are roughly equivalent to 24 years of returns. And when should one stop and say, "I have won"? Or can you even stop?

I don't know the right answer. I'm just an old-school traditional finance person. But personally—I would definitely want to pack up and leave, declare victory, and then go buy... anything I want.

MSTR's cumulative increase over the past 5 years once reached 3000%, but due to a sudden crash, the current cumulative increase is 2520%. However, it remains the best-performing stock over the past 5 years, even surpassing Nvidia and Celsius Holdings.

In Roche's view, MSTR's investment strategy in Bitcoin is fraught with risk but also brings huge returns, while also carrying a flavor of financial speculation.

Citron Shorting MSTR

Currently, Andrew Left's Citron Research is shorting MSTR, believing that MSTR has effectively become a Bitcoin investment fund, and its stock price is overheated "detached from fundamentals." They posted on X:

As Bitcoin investment becomes easier than ever, MSTR's trading volume has completely detached from Bitcoin fundamentals. While Citron remains bullish on Bitcoin, we have hedged through short positions in MSTR. We have great respect for Saylor, but even he must know that MSTR is overheatedFrom a fundamental perspective, MSTR's market value is nearly three times the value of the Bitcoin it holds, with MSTR investors effectively paying $250,000 for each Bitcoin, while the market price is less than $100,000. Citron is not the first company to suggest hedging bullish Bitcoin positions by shorting MSTR. In March of this year, another well-known institution, Kerrisdale Capital Management, made a similar recommendation, stating that they are bullish on Bitcoin but shorting MSTR's stock.

Looking back at MSTR's history, Bitcoin once pulled this company out of the abyss.

MSTR was a typical victim of the 2000 internet bubble, with its stock price plummeting from $300 to $0.42. In 2020, the company's founder, Saylor, made a fateful decision to transform the company into a cryptocurrency investment platform: All in on Bitcoin, claiming that Bitcoin is "the most valuable asset in the world." This decision has forged MSTR's current brilliance.

However, with last night's plunge, is the moment of reckoning for MSTR upon us?