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NASDAQ:MSTR – Share Price 10%+, More Bitcoin To Be Added Amid Debt Raise At MicroStrategy

Analyst Team trader
Updated 14 Mar 2024

The Latest: MicroStrategy (MSTR) announce a proposed private offering of $500 million in convertible senior notes. The company plans to use the proceeds from this offering to acquire additional Bitcoin, underscoring its commitment to integrating Bitcoin into its corporate strategy.

The convertible senior notes, set to mature in 2028, are offered exclusively to qualified institutional buyers in compliance with Rule 144A under the Securities Act of 1933, as amended. These notes will be convertible into MicroStrategy’s class A common stock, with the conversion rate to be determined by the weighted average price of the company’s stock between March 15.

MicroStrategy Share Price Closes Up More Than 10%, Analyst Price Target Upgrades

MicroStrategy Inc (NASDAQ: MSTR), a company that gained the spotlight largely due to its former CEO Michael Saylor's staunch advocacy for Bitcoin (BTC), is currently at the centre of Wall Street chatter for a different reason: could a short squeeze could be looming on the horizon?

The analytics software company has seen a significant escalation in short interest, setting the stage for a potential rapid upward swing in its stock price, and today finds itself 10% up in current trading.

As of March 13, the short interest rate for MicroStrategy stood at a noteworthy 17%, with 2,890,000 shares being shorted. This figure represents nearly one-fifth of all company shares in short positions, indicating that a large segment of the market is betting against the stock. The implications of such heavy short activity, with increasing stock price and fundamentals, are catching the attention of investors, especially given the limited time for certain holders to cover all short positions, should the need arise.

A short squeeze occurs when a stock's price increases rapidly, forcing short sellers to buy back shares at higher prices to cover their positions, which in turn propels the stock price even higher.

Supporting the company’s attractiveness, MicroStrategy boasts ownership of a substantial Bitcoin cache, with 205,000 BTC valued at close to $15 billion or almost 1% of the total 21million BTC. This positions the company as the leading public corporate holder of Bitcoin. The company’s market capitalization stands at $29.84 billion, a figure only twice the value of its Bitcoin holdings, underlining how closely tied the company's valuation is to its cryptocurrency investments. In addition, MSTR states that the average purchase price paid for their BTC as $33,706.00 USD, far below todays' standing.

Historically, there has been a notable correlation between the price movements of MSTR stock and Bitcoin. Given that MicroStrategy's stock is trading at $1,752 per share (after more than 10% gain today so far) and Bitcoin is at $72,693, movements in the cryptocurrency's price are likely to have a considerable impact on MSTR's stock price. Having recently added 12,000 further BTC to the MSTR holdings (announced on 11th March but added between Feb 26th through to March 10), it is clear there is no change in strategy here and the correlation between the two is likely to remain.

Despite the mounting rumours indicating that a potential short squeeze is possible, the financial community remains divided, with analysts offering differing viewpoints on the matter. The current situation offers a deep pool of speculation, as either a further decline in Bitcoin's value or a pivot back towards growth could act as the catalyst for a dramatic shift in MicroStrategy's stock performance. It is certainly an interesting watch, as we have not had quite this much excitement around a short squeeze in quite some time.

Analysts have been paying attention to MSTR with price target raises issued yesterday. Two notable increases from TD Cohen (an Outperform rating, and a raise from $1220 to $1560) and Canaccord (Buy rating and a raise in target from $975 to $1810).

Whilst there is no certainty either way that MicroStrategy's stock will indeed undergo a short squeeze, but the high level of short interest, the company's significant Bitcoin holdings, and the potential for rapid position covering have certainly made MSTR one of the stocks to watch in the coming weeks.

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The AskTraders Analyst Team features experts in technical and fundamental analysis, as well as traders specializing in stocks, forex, and cryptocurrency.