Why MicroStrategy Stock Plunged This Week
Shares of (NASDAQ: MSTR) fell as much as 20.8% in the first four trading days this week as the price of Bitcoin dropped and the company's premium to assets on the balance sheet came down. On Friday morning, shares were still down 22.5% for the week in pre-market trading, according to data provided by S&P Global Market Intelligence.
What MicroStrategy is trying to do is use its stock to purchase more Bitcoin and increase the amount of Bitcoin held per share. The strategy works if MicroStrategy's stock trades for a premium to the value of Bitcoin held per share. MicroStrategy can issue shares to buy Bitcoin, increasing the amount of Bitcoin per share and also likely increasing the price of Bitcoin by taking more supply off the market.
The strategy works until there's no premium or when Bitcoin falls. This week, both happened. Bitcoin is down 5.5% over the past seven days as I'm writing and MicroStrategy's large drop indicates the premium is falling as well.
Source Fool.com
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