MicroStrategy Plunge Extends Following Nasdaq-100 Index Addition

George Soros called it Reflexivity, a concept that’s better known as a virtuous circle. Right now, MicroStrategy’s circle seems to have unraveled, and in hindsight, this unraveling may have been inevitable.

On Monday, MicroStrategy (MSTR) shares fell by more than 8%, hovering just above $300. This represents a nearly 30% decline since the company’s announcement of joining the Nasdaq-100 index and a significant drop of nearly 50% from its all-time high in late November. Looking back, it’s clear that the signs of a short-term peak in the once-obscure enterprise software company turned Bitcoin acquisition giant were everywhere.

The first glaring indicator was the meteoric rise in the stock price. At its peak of $543 in late November, MSTR had surged nearly eightfold in 2024, making it more than 50 times its value since the company started accumulating Bitcoin (BTC) in August 2020.

Then there was Michael Saylor, the company’s founder and Executive Chairman, who was ever more vocal about promoting both the prospects of MicroStrategy and Bitcoin itself. By the end of the year, Saylor’s presence had become ubiquitous across financial news, podcasts, and social media platforms. But it wasn’t just his visibility that raised eyebrows. His behavior had subtly shifted into what could be described as “spiking the football” after a touchdown. One example: his frequent promotion of the company’s “bitcoin yield,” a metric he created that echoed the dubious internet-era statistics like “page views” during the dot-com bubble. With a strong cash position from shares and debt offerings, Saylor also began teasing announcements of large Bitcoin purchases on Sunday evenings, just before official regulatory filings came on Monday mornings.

What followed was the rise of imitators. Although Saylor’s Bitcoin strategy had been clearly successful, other companies had been slow to adopt it. That changed dramatically this year. Companies like Semler Scientific, Metaplanet (a Japanese hotel operator), and several Bitcoin miners began to embrace the same strategy, winning Saylor’s public praise with every capital raise and Bitcoin purchase.

But Soros’ Theory of Reflexivity teaches that these cycles cannot last indefinitely. Soros’ concept posits that investor perception and its influence on asset prices form a feedback loop where prices not only reflect but can also shape reality. Investors might believe a stock will go up because of anticipated positive earnings, and when that belief drives the stock higher, it allows the company to raise funds at favorable terms, further improving earnings, which in turn propels the stock even higher. This is what’s known as a virtuous circle. MicroStrategy appeared to be living through one of these circles in 2024, but as Soros was known to do, he recognized the danger of these cycles and knew when to step back or even bet against them.

Herb Stein’s famous dictum, “If something cannot go on forever, it will stop,” applies just as well to the recent performance of MicroStrategy shares as it does to government budgetary issues.

MicroStrategy’s stock, priced at around $430 just after the December 14 Nasdaq-100 announcement, has since taken a sharp downturn, currently hovering around $300, marking a 30% drop in two weeks. Upon closer inspection, the first signs of a reversal appeared as early as mid-November, when the stock peaked at $543. Despite Bitcoin’s continued ascent through late November and early December, MSTR started to falter, signaling what technical analysts call a “negative divergence.” From its peak, MSTR has experienced a dramatic 45% decline over the course of just five weeks.

Still, MicroStrategy’s performance remains impressive, especially when viewed over the broader timeframe. The stock is up more than 400% year-to-date and about 20 times its value since Saylor initiated Bitcoin purchases in August 2020. While pessimists may argue that the downturn has further to go, optimists would point out that MSTR has weathered similar short-term declines in the past and has always rebounded.

So, what would Soros say? He might remind us that his Theory of Reflexivity teaches that prices can move further than anyone might expect, whether upward or downward.

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