A short seller says it's buying bitcoin and betting against MicroStrategy because the stock trades at an 'unjustifiable' premium over the crypto itself

• Kerrisdale Capital is buying bitcoin and shorting MicroStrategy stock as an arbitrage trade.
• The short seller said in a report that MicroStrategy is trading at a premium valuation of $177,000 per bitcoin.
• "As is often the case with crypto, things have gotten carried away," Kerrisdale Capital said.

Investors looking to gain exposure to bitcoin should buy a spot bitcoin ETF rather than betting on MicroStrategy stock, according to a short report from Kerrisdale Capital.

The investment firm said it was shorting MicroStrategy stock and buying bitcoin as an arbitrage trade to capitalize on the "unjustifiable premium" valuation that MicroStrategy trades at relative to bitcoin.

According to Kerrisdale Capital's calculations, MicroStrategy trades at a valuation of $177,000 per bitcoin it owns.

"Shares of MicroStrategy have soared amid a recent rise in the price of bitcoin but, as is often the case with crypto, things have gotten carried away," Kerrisdale Capital said. "The days when MicroStrategy shares represented a rare, unique way to gain access to bitcoin are long over."

MicroStrategy has gone on a bitcoin buying spree over the past few years.

Led by its co-founder and Chairman Michael Saylor, MicroStrategy has amassed 214,246 bitcoin, or more than 1% of the total supply of the cryptocurrency, at an average cost of $35,160 per coin. 

At bitcoin's current price of $70,814, MicroStrategy's crypto holdings are worth $15.2 billion. But the company has an enterprise value of $38 billion, or more than double the value of its bitcoin holdings.

And that's where the disconnect is, according to Kerrisdale Capital, which ascribes just a $1.3 billion value to MicroStrategy's underlying software business. 

"In effect, MicroStrategy shareholders are now paying $177k per bitcoin when they could instead gain exposure to the asset through any of a growing number of ETPs, brokerages, payment platforms, and exchanges for less than half that," Kerrisdale Capital said.

With bitcoin now readily available to nearly all investors via spot bitcoin ETFs, MicroStrategy's allure as an easy way for investors to gain exposure to bitcoin without opening an account at a cryptocurrency exchange is likely to fade.

"IBIT, FBTC, and a raft of other vehicles offer liquidity and ease of trading that will only grow in number globally. These developments bode well for bitcoin, but represent a secular threat to MicroStrategy's scarcity value and bloated NAV," Kerrisdale Capital said. 

Kerrisdale Capital ultimately sees a potential 50% decline in MicroStrategy stock relative to bitcoin.