Tesla and MicroStrategy are falling. Gary Black advises getting rid of Bitcoin

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Former investment director at Goldman Sachs, Gary Black, believes Tesla still has an opportunity to stem the fall in its stock. To do this, the company must sell bitcoins. Tesla’s surplus cash should be used to buy its own stock, not cryptocurrency, he argues.

 

“Imagine the positive momentum around Tesla if they announced the sale of their BTC position and instead approved a share buyback,” Black writes. At the same time, he admits that this option looks “extremely unlikely, but the shareholders would support him in every possible way.”

 

Tesla announced a $ 1.5 billion investment in Bitcoin on February 8. Since then, its share price has dropped 30% from $ 873 to the current $ 610.

What is happening is primarily explained not by the company’s decision to buy cryptocurrency, but by trends in the broader financial market. Its participants are concerned that rising bond yields will lead to a drop in demand for risky assets. As a result, the stocks of most EV makers and tech companies in general began to plummet.

On February 8, Black announced the closure of his long position on TSLA, which he had held since August 2019. He explained the decision by the fact that the company not only does not openly disclose its goals to investors, but also decided to place reserves in such a risky asset as bitcoin.

It became known on Thursday that billionaire Ronald Baron has sold 1.8 million Tesla shares since August in the interests of clients. At the same time, he said that for him “it was a pain to sell every” security, and he continues to hold his 1.1 million shares and believes that within 10 years their price will rise to $ 2,000. Baron associates the sale of investors with aversion of risks , while he himself told Elon Musk that he would “come out last.” In total, Baron Capital held more than 6.1 million Tesla shares as of February 28, with an average purchase price of $ 42.34.

MicroStrategy = Bitcoin at $ 88,000

It is not only TSLA that is falling among the companies buying bitcoin. Shares of MicroStrategy, which started the trend for corporate investment in cryptocurrency, fell more than 50%. On February 9, during the trading session, their price reached $ 1,315, and now it is $ 645.

Bitcoin fell by 20% during the same time. Even after the decline, MSTR shares are worth five times more than they were before the acquisition of cryptocurrency.

CoinDesk Lead Editor Laurence Levitinn notes that buying MicroStrategy bitcoin at an average price of $ 24,063 in light of the recent rally seems like a very good decision, but the situation is different with MSTR stock.

The company’s capitalization is $ 7.2 billion, the value of its assets in bitcoin is $ 4.4 billion, the amount of investments in bitcoin is $ 2.186 billion. At the time of the first announcement of the acquisition of bitcoin, the capitalization of MicroStrategy was at the level of $ 1.3 billion. To buy all these bitcoins, the company initially took $ 425 million from its own cash reserves and then raised $ 1.7 billion through convertible bonds. Converting these bonds adds another couple million to the existing 10 million MSTR.

Levitinn made the following calculation: he took the value of MicroStrategy as a company ($ 1.3 billion before buying bitcoin), added the value of the bitcoins at its disposal ($ 4.4 billion) to it, and subtracted expenses along with debt obligations. The result was a value of $ 3.575 billion, which is almost half of the current capitalization.

He calls this discrepancy nothing more than “magic”.

 

“The $ 3.6 billion overpayment is a bet on value that has yet to be disclosed. It’s a bet that Michael Sailor and other executives can do incredible things with the company, like buying a lot of bitcoins before anyone else, he writes. – So far, this bet has been profitable for those lucky enough to enter at the right time. MicroStrategy shares have significantly outperformed bitcoin since the beginning of September. ”

 

If we consider MSTR as a tool for indirect investing in bitcoin in the traditional market, such a purchase will be very expensive. Overpayment of $ 3.6 billion on top of $ 4.4 billion in bitcoin MicroStrategy suggests that investors buy cryptocurrency at a price of $ 88,000, more than three times the company’s average purchase price of a digital currency of $ 24,063.

 

“What will the overpayment be if the SEC, run by Gary Gensler, approves a Bitcoin ETF? Who knows. Stranger things also happened. Stocks may continue to rise. In these conditions, everything is possible. If stocks in a declining video game seller can skyrocket, what is stopping investors from overpaying for Bitcoin? ” – concludes Levitinn.

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