MicroStrategy (NASDAQ: MSTR) has become one of the most valuable stocks on the Nasdaq by pursuing a simple strategy: buying Bitcoin (CRYPTO: BTC).

The stock has soared alongside Bitcoin's gains this year, which have come with the broader bull market, the launch of spot Bitcoin exchange-traded funds (ETFs), and optimism that a new Trump administration will adopt crypto-friendly policies. As you can see from the chart below, both MicroStrategy and the cryptocurrency have surged this year.

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MicroStrategy is unique on the stock market because it essentially acts like a leveraged Bitcoin ETF. Chief Executive Officer Michael Saylor, one of the biggest evangelists for the digital coin, began buying it for his company in 2020, and it held 252,220 bitcoins as of the end of the third quarter.

However, one well-known short-seller is now saying MicroStrategy is overvalued and that its model is unsustainable. Andrew Left of Citron Research posted his thesis on X, saying that while his company was bullish on MicroStrategy in 2020 as a way to invest in Bitcoin, it had now reversed its position.

Citron said that MicroStrategy's value has completely detached from the crypto's performance. Citron noted that it was still bullish on Bitcoin but was hedging that bet with a short position in MicroStrategy.

The company's stock plunged 16% last Thursday when Citron published its short report.

The bear case for MicroStrategy

Left is correct that MicroStrategy's fundamentals have become detached from Bitcoin's value. It does have a small software business, but it's basically negligible as far as its valuation is concerned -- its market cap was $94.8 billion as of Nov. 22. It now identifies itself as a Bitcoin treasury company.

But its Bitcoin holdings don't justify that valuation, either, because based on its market cap and those holdings, the company is valued at $375,864 per token, which is nearly four times the price of the cryptocurrency -- $98,807 -- at the time of writing. The value of the Bitcoin held on its balance sheet is now $22.4 billion.

Currently, MicroStrategy is sitting on a gain of $49,441 per Bitcoin, with an average purchase price of $39,266. In total, it has gained $12.5 billion from its Bitcoin purchases.

The company also has $4.2 billion in long-term debt as it continues to borrow money and sell stock to buy the crypto.

Why MicroStrategy is more volatile than Bitcoin

MicroStrategy trades like a leveraged Bitcoin ETF because the company is consistently increasing exposure to the crypto, which effectively makes it an outsized bet on Bitcoin going up. Holding Bitcoin directly or through an ETF doesn't allow you to do that, as the exposure is steady.