MicroStrategy’s Bitcoin investment strategy is proving to be profitable as the company’s stock, MSTR, has surged roughly 140% YTD to $350 per share, its highest level since September 2022. The stock has maintained a strong positive correlation with Bitcoin, which has gained 90% YTD.
Proxy Bitcoin investment boom
MicroStrategy is essentially a proxy for direct BTC investment without a spot Bitcoin exchange-traded fund (ETF) in the United States. It holds 140,000 BTC worth $4.26 billion, the most by a publicly traded company as part of its treasury strategy.
MSTR investors typically get their buying or selling cues from the same catalysts that drive Bitcoin market trends. For example, Bank of America entities own 86,147 MSTR shares, and Fidelity purchased 97,199 MSTR shares throughout 2022, indicating growing institutional interest in proxy Bitcoin investments.
MicroStrategy’s core business is unhealthy
Despite MicroStrategy’s successful Bitcoin investment strategy, the company’s core business as an enterprise software solution company is unhealthy. The firm realized a net loss of $193.7 million during Q4 2022, and its operating cash flow was $18.2 million, down from a positive cash flow of $3.2 million in the same quarter a year ago.
MicroStrategy could sell its Bitcoin holdings to boost its balance sheet reserves, however, the company has said it would not alter its BTC buying strategy even under financial stress. In this case, strategies like share dilutions and debt offerings would be employed to raise capital to buy BTC.
“The risk here will come from its inability to buy Bitcoin with positive cash flows in future quarters as per its strategy,” said Pacifica Yield, a financial blogger at Seeking Alpha.
20% correction for MSTR stock in Q2?
From a technical standpoint, MSTR has a high probability of a 20% price correction in Q2. The stock’s yearly rally has landed its price near a resistance range between $320 and $340, notorious for capping breakout attempts. If a pullback occurs, the price could drop towards its 50-3D exponential moving average (50-3D EMA; the red wave) below $260 by June.
MicroStrategy is expected to release its Q1 earnings report by May 2. This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.