MicroStrategy’s Virtuous Cycle Stumbles: A Reflexivity Breakdown
George Soros once coined the term Reflexivity to describe the self-reinforcing feedback loop between market perception and asset prices. In the case of MicroStrategy, the virtuous cycle that propelled its stock skyward now appears to be faltering.
On Monday, MicroStrategy’s (MSTR) shares tumbled over 8%, closing just above $300. This marks a staggering 30% drop since its inclusion in the Nasdaq-100 index was announced and a nearly 50% slide from its late-November peak of $543.
Signs of a Peak Were Clear
The warning signs of a potential short-term top were hard to ignore. MicroStrategy’s stock had surged nearly eightfold in 2024 and climbed more than 50 times since the company began its Bitcoin (BTC) buying spree in August 2020.
Executive Chairman Michael Saylor, known for his relentless promotion of Bitcoin and MicroStrategy’s treasury strategy, became even more omnipresent in financial media, podcasts, and social platforms. His tone shifted, leaning towards a celebratory exuberance, often teasing large Bitcoin purchases on Sundays before official filings on Mondays.
Copycat Strategies Emerge
For years, other publicly traded companies hesitated to fully adopt Saylor’s Bitcoin-focused treasury approach. While Tesla and Square made minor allocations, no significant corporate peers followed suit—until recently. In 2024, smaller players like Semler Scientific, Japanese firm Metaplanet, and several Bitcoin miners joined the trend, attracting Saylor’s public praise with each capital raise and BTC acquisition.
Reflexivity in Action
Soros’ Reflexivity Theory explains how market perception can create self-fulfilling realities. When investors believe in future stock gains, rising share prices allow companies to raise capital at lower costs, which can boost earnings, driving prices even higher. This feedback loop, often called a virtuous cycle, has been at the core of MicroStrategy’s meteoric rise.
However, as economist Herb Stein famously said, “If something cannot go on forever, it will stop.” In MicroStrategy’s case, the cycle now seems to have hit a breaking point.
Cracks Appear
Following the Nasdaq-100 inclusion announcement, MSTR shares peaked at $543 on November 21. But despite Bitcoin’s continued rally, MSTR began losing ground, signaling a concerning divergence. As of Monday, the stock sits roughly 45% below its peak.
Still a Long-Term Success Story?
Despite the steep drop, MSTR remains up over 400% year-to-date and has increased twentyfold since MicroStrategy adopted Bitcoin as its primary treasury asset. Bulls will argue that past corrections have ultimately resolved in further gains, while bears may suggest more downside lies ahead.
Soros’ Reflexivity Theory reminds us that market cycles—both upward and downward—can often exceed even the most optimistic or pessimistic expectations. Whether MicroStrategy’s decline is a temporary setback or the start of a larger trend remains to be seen, but one thing is certain: the virtuous cycle has been interrupted, at least for now.
