The new investment strategy of a well-known hedge fund: long BTC, short micro-strategy?

Hedge fund Kerrisdale Capital disclosed a subtle investment thesis today: long BTC and short MicroStrategy stock.

This company is positioned to provide micro-strategies for BTC investment tools, and its trading price has an obviously unreasonable premium compared to the underlying Crypto assets that mainly constitute its value.

Kerrisdale Capital’s analysis sheds light on how the microstrategy firm’s share price has soared amid the recent rise in BTC prices, but as is often the case with crypto assets, things have gotten out of control.

Kerrisdale also highlighted a key difference, noting that MicroStrategy’s share price implies a BTC value of “over $177,000, or 2.5x the BTC spot price.”

When exploring the reasons behind MicroStrategy’s premium share price, Kerrisdale dismissed some of the arguments in favor of the company’s market valuation.

The report revealed that the local stated: "None of the excuses given for the premium on MicroStrategy's shares are sufficient to justify paying more than twice the price for the same coin."

This A statement underlines Kerrisdale’s stance that microstrategy firms are overvalued in terms of direct BTC exposure.

Since 1989, under the leadership of CEO Michael Saylor, MicroStrategy has been actively accumulating BTC and making it a core pillar of its investment strategy.

From August 2020 to 2023, the company made significant financial operations to increase its holdings, which currently exceed 214,000 BTC.

Kerrisdale’s valuation methodology takes into account MicroStrategy’s enterprise software business and its BTC reserves.

The analysis concluded that the software business, while still operating, "no longer contributes meaningful value to the overall enterprise," highlighting BTC's overwhelming impact on the company's valuation.

A key point of Kerrisdale's criticism is that MicroStrategy's shares are trading at too high a premium relative to net asset value (NAV).

The report pointed out: "The stock premium of micro-strategy companies is 2.6 times, which is abnormally high."

Kerrisdale believes that if the premium rate of micro-strategy companies' stocks is adjusted to a more consistent level historically , then relative to the performance of BTC, MicroStrategy’s stocks will experience a sharp decline.

The report takes an in-depth look at the potential impact of microstrategic companies’ financial strategies, including their reliance on leverage and the dilutive effect of their financing mechanisms.

Kerrisdale’s analysis shows that although micro-strategy companies have successfully increased their holdings of BTC with active capital market activities, at the same time due to the dilutive impact of debt financing and equity issuance, each The number of BTC shares has stagnated.

Finally, Kerrisdale Capital estimates: "If the current 2.6 times premium contract is adjusted to a more consistent 1.3 times historically, then the decline in MSTR relative to BTC will be 50%."

This conclusion was reached after examining the interaction between micro-strategy firms’ stock premiums, BTC holdings, and broader market dynamics.

The response from the community was quite sharp.

Bit Paine commented: "Micro strategy are you selling pre-sale tickets to your funeral?"

Another Crypto asset analyst Trey Sellers said: "In my opinion, That seems like a logical position, although the market can remain irrational longer than you can remain solvent, as the saying goes."

OSF added: "Probably nothing can compare. There's nothing worse than releasing your mid-curve trading idea to a bunch of irrational degenerates who will make it their lifelong mission to liquidate you."

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