MicroStrategy Stock Price Falls 4.3% Following Q3 Earnings Report

MicroStrategy saw its stock price fall immediately following a reasonably positive earnings report and the purchase of an additional 420 BTC. Could investors be rotating capital out of Microstrategy and into the BITO ETF?

Excitement Over Futures Bitcoin ETF Dying Down

Although there has been enthusiasm from investors for the recently launched Bitcoin ETFs, there are many downsides to it being futures-based:

• Diluted exposure — only up to 85% for the purpose of consumer protection.
• Decayed rollout of futures contracts from one month to the next.
• 0.95% fund fees.
• Ripe with speculation which tends to cause divergence from “physical” bitcoins.
• Excessive shorting, which may cause counterparty risk — the likelihood of the other party failing to meet its futures contractual obligations.

MicroStrategy Absorbs ETF Blow

Behind Grayscale Bitcoin Trust (GBTC), Block.One and Wrapped BTC, Michael Saylor’s business intelligence company now holds 114,042 BTC as of last week’s Q3 2021 report. In that period alone, the company amassed over $1.3 billion worth of BTC.

This puts MicroStrategy’s total Bitcoin investment at over $7 billion, serving as a proxy for BTC price moves, just like GBTC. However, MicroStrategy (MSTR) is a publicly-traded company, while GBTC is trading over-the-counter (OTC) on the secondary market.

After the launch of the ProShares Bitcoin ETF (BITO), MSTR met its publicly traded match, reflected by the dip of its shares. On the day of BITO’s launch, MSTR went down by 5.5%.

Likewise, when MSTR published its Q3 2021 earnings report, its shares took a dive by 4.3%, having rallied in the meantime. The cause of the first dip is apparent – investors rode the first-ever BTC ETF hype out of MSTR into BITO. After all, it isn’t often that an ETF achieves a $1 billion valuation in a single day.

As for last week’s MSTR shares slide, the report stated some negative trends for the company:

• Loss from operations more than doubled, from $20.3 million in Q3 2020 to $49.7 million in Q3 2021.
• Net loss also more than doubled, from $14.2 million in Q3 2020 to $36.1 million in Q3 2021.
• Cash reserves decreased by $2.7 million and operating expenses increased by 23% for the same period.

However, these data points are less important than the fact that MicroStrategy more than doubled its valuation since it began heavily investing in Bitcoin. Moreover, its reported earnings per share (EPS) exceeded FactSet’s estimates: EPS of $1.86 on a $128 million revenue vs. forecasted EPS of $0.64 on a $127.5 million revenue. Similarly, it surpassed Zacks Consensus Estimate EPS of $1.12.

CEO Michael Saylor noted that the company will continue to hold and buy Bitcoin.

MicroStrategy raised much of the capital to buy Bitcoin by selling junk bonds and its class A common stock shares. This is a continuation of the company’s strategy since August 11, 2020; buy BTC as a primary treasury reserve, and then buy more.

At the time, MicroStrategy issued a statement that reflects its commitment to this strategy to this day:

“[I]nvesting in the cryptocurrency would provide not only a reasonable hedge against inflation, but also the prospect of earning a higher return than other investments.”

By the same token, we had correctly posited that MicroStrategy’s acquisition of 3,907 BTC in August 2021, at $45k, was the new BTC bottom. Overall, since Saylor’s bold move to go all in on Bitcoin, the company’s shares have appreciated by 379%.

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When Can We Expect a Spot Bitcoin ETF?

In the meantime, the top Bitcoin holder, Grayscale Bitcoin Trust, has nearly 6x more BTC than MicroStrategy. The fund is still pushing for a real, spot-based BTC ETF as opposed to the current futures-based offerings. During MarketWatch’s virtual event on Wednesday, David LaValle, GBTC’s Managing Director and Global Head of ETFs, noted the following:

“Now that the bitcoin futures products were somewhat off the plate of the SEC, they would be open to look at the filings of spot-based products.”

Grayscale Bitcoin Trust would be ideally suited to convert into an ETF; presently it is arguably acting as a pseudo-ETF. However, there seems to be a consensus among analysts that a spot-based ETF – one that holds and tracks the price of “physical” bitcoins – is a long way off, at least until H2 2022.

LaValle placed the time frame on the very first approved spot BTC ETF at around 240 days after the filing is submitted.

Some industry leaders are more optimistic. David Abner, Gemini’s global head of business development, said during the event it could be sooner:

“I think it could be as early as the end of this year.”

Given that the Australian Securities And Investments Commission (ASIC) has just greenlighted a spot-based Bitcoin ETF, this could quickly leave the US as the only major Western country having not approved one.

Do you think investing in a spot-based Bitcoin ETF would be more secure than handling your own BTC custody? Let us know in the comments below.