MicroStrategy, the business intelligence firm heavily invested in Bitcoin, faced a steep drop of 16.2% in its stock price on Thursday, despite Bitcoin reaching a fresh record high just shy of $100,000. This decline came even as the cryptocurrency market soared to new heights, with Bitcoin continuing to break barriers. While this move might seem like a short-term setback, it’s important to look at the bigger picture, where MicroStrategy’s stock has still gained over five times its value in 2024 alone and nearly eight times its value over the past year.

At the heart of this dramatic shift is a significant divergence between the company’s stock price and the Bitcoin it holds. As of Thursday, MicroStrategy’s market cap topped $100 billion, a valuation that exceeds the value of the 331,000 BTC on its balance sheet—worth approximately $32.5 billion at current prices. This vast overvaluation has sparked criticism from analysts like Andrew Left of Citron Research, who initially recommended investing in MicroStrategy as a Bitcoin proxy. While Left remains bullish on Bitcoin, he has now hedged his position by shorting the stock, citing the unsustainable gap between MicroStrategy’s valuation and its Bitcoin holdings.

The market’s enthusiasm for MicroStrategy’s stock has been fueled by the company’s Bitcoin accumulation strategy, where rising Bitcoin prices drive the stock higher, enabling further Bitcoin purchases. This has created a positive feedback loop, pushing the company’s stock valuation beyond its fundamental value. However, critics like Jonathan Weil of The Wall Street Journal caution that investing in MicroStrategy’s stock is essentially betting on a “bizarrely inefficient” market that continues to inflate despite the detachment from underlying Bitcoin fundamentals.

Despite these concerns, MicroStrategy’s massive Bitcoin holdings remain an attractive feature for investors who believe in the long-term prospects of Bitcoin. However, for those who think Bitcoin’s rise will slow or correct, MicroStrategy’s stock may not be the safest investment, given its volatility and dependence on Bitcoin’s performance.