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Why MicroStrategy Stock Plunged on Monday

By Jon Quast - Jan 11, 2021 at 11:04AM

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The company has lost over $600 million in balance-sheet value over the last few days.

What happened

Shares of MicroStrategy ( MSTR -5.94% ) plunged on Monday, and it's all because of popular cryptocurrency bitcoin. Of course, I should say bitcoin wasn't very popular over the weekend, having plummeted more than 20% from all-time highs reached last week. And since MicroStrategy holds thousands of bitcoin tokens on its balance sheet, bitcoin's decline directly lessens MicroStrategy's value, which is why the stock was down 8% as of 11 a.m. EST.

So what

Here's what could be negatively impacting the price of bitcoin over the last couple days. Over the weekend, British newspaper The Times noted that HSBC won't process transfers from cryptocurrency exchanges anymore. Let's say someone has an account with a crypto exchange and has large (but unrecognized) gains in bitcoin. They won't be able to convert that into fiat currency through HSBC. That's a big deal if someone bought bitcoin as an investment.

A rising red arrow breaks near the top which results in the tip of the arrow pointing down.

Image source: Getty Images.

While plenty of banks will still process transfers from crypto exchanges, this may be sparking some panic from bitcoin investors looking to cash out on bitcoin's outsized gains over the past three months. They might be thinking they should sell now before more banks ban it later. Late last Thursday, the price of bitcoin nearly reached $42,000. As of this writing, the price of bitcoin is below $32,000. 

Here's how it relates to MicroStrategy: As of Dec. 21, the company was holding 70,470 bitcoin tokens on its balance sheet. With the plunging price of bitcoin, the value on MicroStrategy's balance sheet has lost over $600 million in value over just the last few days. For that reason, the stock's drop today seems justified.

MSTR Chart

Movements in MicroStrategy's stock largely mimic that of bitcoin over the last three months. MSTR data by YCharts

Now what

When we buy stocks, our research needs to include an understanding of how a company makes money, its addressable market, and its profit potential. However, in MicroStrategy's case, for better of worse, investors also should understand what's driving the price of bitcoin. With so much of its balance sheet in bitcoin, it's just a reality.

That might be more than most investors signed up for when they bought MicroStrategy stock. The move to hold this much bitcoin on its balance sheet will eventually either be seen as visionary or reckless in hindsight, depending on what bitcoin does in coming months. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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