MicroStrategy (MSTR) Stock: Hedge Funds Bet Big As BTC Breaks $100K

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As an analyst with over two decades of experience in the financial markets, I’ve witnessed my fair share of market euphoria and panic. The current surge in MicroStrategy (MSTR) stock, fueled by Bitcoin’s rally to new highs, is nothing short of extraordinary.

Once more, MicroStrategy (MSTR) shares have soared beyond $400, following Bitcoin‘s price surge past $103,000 to a record high. This year, MSTR has seen over 500% growth, outpacing Bitcoin and aiming for even higher peaks. Consequently, it is now a preferred choice for hedge funds seeking to capitalize on MSTR’s price fluctuations.

MicroStrategy Stock on Upward Trajectory Again

Once more, MicroStrategy’s shares are demonstrating resilience, bouncing back from their weekly low of $350, as Bitcoin emerges from its period of consolidation. On Wednesday, the share price for MSTR climbed by 8.72%, crossing over the $400 threshold again.

Additionally, Bitcoin hitting the $100,000 mark during overnight trading causes a 10% increase in the stock price. For the first time ever, the company’s Bitcoin assets are valued at over $40 billion due to this milestone.

In a recent disclosure, MicroStrategy’s co-founder Michael Saylor announced that the firm managed to secure a capital influx of about $13.5 billion in November, which was used to purchase a total of 149,880 Bitcoins. The average price paid for each Bitcoin was roughly $90,231.

As a researcher, I can confidently state that the strategic decision made here yielded an astounding 38.7% return on Bitcoin investment. In monetary terms, this translates to a staggering net profit of approximately 97,500 Bitcoins for our shareholders. That’s roughly 3,250 Bitcoins per day! When you consider the value of each Bitcoin at around $10,000, this equates to an impressive sum of $10 billion.

In light of Bitcoin’s recent price surge, the company’s total Bitcoin holdings, amounting to 402,100 BTC, now exceed a staggering $40.8 billion. This means they have amassed a substantial profit of approximately $18 billion from their Bitcoin stash. Analysts at Bernstein predict that the MSTR stock could reach $600, which would represent an additional 50% increase over its current value.

Hedge Funds Riding MSTR Volatility

Eli Pars, who serves as a joint Chief Investment Officer at Calamos Advisors LLC, has been instrumental in securing approximately $6 billion worth of convertible notes from MicroStrategy this year. Similar to other firms, Pars employs these notes in market-neutral arbitrage strategies that leverage the increased volatility of Bitcoin, the underlying asset.

Calamos Advisors manages over $130 million in MicroStrategy bonds, using a blend of buy-and-hold positions and strategic arbitrage to control risk and maximize profits. According to Pars, convertible securities like these allow companies to capitalize on the volatility of their own stocks, with MicroStrategy being an especially dramatic case.

Moreover, MicroStrategy’s convertible bonds have sparked interest among Wall Street experts due to their appealing pricing, which presents an opportunity for significant arbitrage earnings. This year, the company has become the leading global issuer of convertible bonds. As Pars stated, “The trade is alluring because the implied volatility of the converts is significantly lower than the realized or option-implied volatility.

In my analysis, as the value of MicroStrategy’s stock escalates, its CEO, Michael Saylor, is consistently funneling funds back into Bitcoin by selling shares. This action further drives up Bitcoin’s price, which in turn sparks more profits for MicroStrategy. Consequently, this loop seems to be self-perpetuating, with the fortunes of both Bitcoin and MicroStrategy appearing intertwined.

The risk lies in the potential for Bitcoin’s year-long rally to reverse, which could lead to significant consequences for investors holding increasingly leveraged positions on its value. David Trainer, CEO of market research firm New Constructs LLC said:

This structure might resemble a towering house of playing cards, ready to tumble at any moment, causing great losses for numerous shareholders. There appears to be no substantial value underlying it. It’s more like a game of musical chairs where people participate until the music stops; the goal is simply to leave before the impending collapse.

In the previous 24 hours, the cost of Bitcoin soared by 7%, reaching an impressive peak of approximately $103,900. Bullish investors have managed to keep the price above $102,000, a testament to their determination. This upward trend is further supported by a surge in trading volume by around 75% over the past few hours, demonstrating heightened enthusiasm among traders for this digital asset.

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2024-12-05 10:50