The MicroStrategy Bubble: A Retrospective Analysis
As we look back on the remarkable run-up in MicroStrategy’s (MSTR) stock price, it is clear that the company’s fortunes have changed significantly since its inclusion into the Nasdaq-100 index and its late November record high. The shares are now lower by approximately 30% from their peak of $543 on Nov. 21, 2024, and nearly 50% from their all-time high.
The Signs Were There
The signs of a major short-term top in MicroStrategy’s stock price were evident even before the company’s inclusion into the Nasdaq-100 index. The rocketing stock price, which had risen by nearly eight-fold in 2024 and more than 50-bagger since the company began buying bitcoin (BTC) in August 2020, was a clear indicator of a bubble forming.
The Prominence of Michael Saylor
Founder and Executive Chairman Michael Saylor’s constant appearances on financial news channels, podcasts, and social media were also indicative of a company in overdrive. His enthusiasm for the company’s prospects and his evangelism for Bitcoin were contagious, but they also created unrealistic expectations among investors.
The Emergence of Copycats
The lack of other publicly traded companies adopting MicroStrategy’s bitcoin treasury strategy was a major factor contributing to the company’s success. However, this changed in 2024 with several small-cap medical device makers and hotel operators following in MicroStrategy’s footsteps.
The Saylor Vision
Michael Saylor’s vision for MicroStrategy as a Bitcoin development company was beginning to gain traction. His constant promotion of the company’s bitcoin yield metric, which some critics argued was a made-up internet bubble metric, created a sense of urgency among investors.
The Signs of a Top
Despite the remarkable gains in MicroStrategy’s stock price, there were signs of trouble brewing even before the Dec. 14 announcement of its inclusion into the Nasdaq-100 Index. The stock peaked at $543 on Nov. 21, but then lost ground despite bitcoin’s continued rise.
The Crack-Up Boom
George Soros’ Theory of Reflexivity provides valuable insights into the MicroStrategy bubble. According to Soros, investor perception and its effect on prices can create a virtuous circle, where prices go higher because investors believe they will, and vice versa. However, as Soros also noted, "if something cannot go on forever, it will stop."
The Scoreboard: Still Showing Remarkable Gains
MicroStrategy’s stock price has still put in a remarkable performance under most time frames. Despite the recent decline, the shares remain higher by more than 400% year-to-date and about 20-fold from the time Saylor initiated bitcoin purchases in August 2020.
The Bears and Bulls
Bears might argue that the plunge has far to go, while bulls would point out that MicroStrategy’s run since August 2020 has seen several similar scary short-term declines followed by recoveries. The question is: will this trend continue?
What Would Soros Say?
If George Soros were to analyze the MicroStrategy bubble, he might remind us that prices can go further (both upward and downward) than most could possibly expect. His Theory of Reflexivity teaches that investor perception and its effect on prices can create a self-reinforcing cycle, where prices go higher because investors believe they will, and vice versa.
Conclusion
In conclusion, the MicroStrategy bubble was a remarkable phenomenon that saw the company’s stock price rise by nearly eight-fold in 2024. While the shares have declined significantly since their peak, they remain higher by more than 400% year-to-date and about 20-fold from the time Saylor initiated bitcoin purchases in August 2020. The question is: will this trend continue? Only time will tell.
The MicroStrategy Bubble: A Timeline
- August 2020: MicroStrategy begins buying Bitcoin.
- Nov. 21, 2024: MSTR stock price peaks at $543.
- Dec. 14, 2024: MSTR is included into the Nasdaq-100 index.
- Present day: MSTR stock price has declined significantly from its peak.
The Lessons Learned
- The MicroStrategy bubble was a classic example of a virtuous circle created by investor perception and its effect on prices.
- The company’s stock price rise was fueled by unrealistic expectations among investors.
- The emergence of copycats in 2024 contributed to the company’s success, but also created new challenges.
The Future
Only time will tell if MicroStrategy’s fortunes will continue to change. However, one thing is certain: the company’s story has captivated investors and traders around the world.
