Bitcoin investing companies Tesla and MicroStrategy have dropped significantly over the past month. On May 19, the price of the most popular cryptocurrency fell to $ 30,000. Bitcoin is currently trading at around $ 40,000, 40% below its mid-April highs. Consequently, the stocks of companies whose profits depend on the price of the cryptocurrency are also adjusted. Thus, Tesla and MicroStrategy shares are now dependent on what is happening with Bitcoin, although it would have been very difficult to imagine such a thing just a few years ago.
Top managers urge companies to sell Bitcoins, and use the surplus funds to buy their own shares, and not cryptocurrencies. At the same time, they admit that this option looks “extremely unlikely, but the shareholders would support it in every possible way”.
Note that if companies follow this advice, selling that amount of cryptocurrency could bring the market down.
Tesla shares plummet 36%
Tesla announced a $ 1.5 billion investment in Bitcoin on February 8. Since then, its share price has plummeted 36%. Tesla shares were trading at $ 580 on Monday, below their February high of $ 880. Tesla’s main business of selling electric cars remains unprofitable, which is why the company’s shares are so correlated with the price of Bitcoin.
We also note that many investors closed long positions in Tesla shares after the company placed reserves in such a risky asset as the first cryptocurrency.
Although, what is happening is primarily explained not by the company’s decision to buy cryptocurrency, but by trends in the broader financial market. Its participants are concerned that rising bond yields will lead to a drop in demand for risky assets. As a result, the stocks of most EV makers and tech companies in general began to plummet.
MicroStrategy shares lost 64% in price
MicroStrategy has suffered even bigger losses than Tesla, since February its shares have lost 64% in price. Compared to its February high of $ 1,272, MicroStrategy is currently worth $ 448.
In August 2020, MicroStrategy was the first public company to invest in Bitcoin. Later, the firm’s board of directors approved a policy of increasing investment in the first cryptocurrency at the expense of cash reserves. As of May 25, 2021, MicroStrategy owns 92,079 BTC worth more than $ 3.4 billion. Their average purchase price is $ 24,450. The share of Bitcoin reserves in the market capitalization of the analytical software provider is 74%.
Note that the price of MicroStrategy shares, despite the fall, is still significantly overestimated compared to the value of the Bitcoins that the company owns. Stocks have outperformed Bitcoin significantly since early September.
If we consider MicroStrategy shares as a tool for indirect investing in Bitcoin, then its price should now be $ 88,000, which is almost three times the average cost of acquiring digital currency by a company of $ 24,450.
Following Tesla and MicroStrategy, the cryptocurrency exchange Coinbase, a company whose business is directly related to Bitcoin, also suffered losses. The exchange receives most of the revenue from commissions from the purchase and sale of cryptocurrencies. Coinbase shares are trading 32% below the April 14 listing price.