Stock strategy faltering despite Bitcoin reaching all-time high: reasons explained
MicroStrategy (MSTR) and Strategy Inc. (MSTY), two prominent companies with significant Bitcoin holdings, have been making headlines in the financial world. Both companies have seen impressive growth, but they differ in their approach and the risks they carry.
Jim Chanos, a well-known short-seller, is among those betting against MSTR, raising concerns about the company's business model. These concerns are further fueled by the potential dilution due to MSTR issuing more shares to buy Bitcoin, increasing total outstanding shares from 78 million in 2022 to 261 million.
Despite these challenges, MSTR's stock has managed to jump by over 2,100% from its lowest point in 2022. The company is currently approaching a crucial support level at $358, a level it has failed to move below since May 28. A drop below this level would confirm a bearish breakout and point to more downside towards $300.
Interestingly, MSTR has moved below its 50-day and 100-day moving averages, hinting at a potential bearish breakout. However, a move above the resistance at $415 would invalidate this bearish outlook.
Yahoo Finance data shows that the average analyst estimate for MSTR is $569, a 55% increase from the current level. The daily timeframe shows that MSTR's share price has pulled back in the past few weeks, dropping to $367, down by 20% from the year-to-date high.
Strategy Inc., which appears to be a related entity to MicroStrategy, has adopted a similar Bitcoin accumulation strategy but with different financing methods. MSTY’s Bitcoin holdings have grown to roughly 607,770 BTC, leading to a massive increase in company valuation. However, this approach includes the use of convertible bonds and preferred shares to fund Bitcoin acquisitions, which carries high risk but has led to extraordinary returns during Bitcoin bull runs.
MSTY's stock price and premium to Bitcoin value have compressed recently, causing management to relax stock issuance rules to allow buying Bitcoin below previous premiums. This move has raised concerns among analysts, who warn that if Bitcoin prices decline, the stock could suffer further losses, especially given concerns about credit market skepticism and the debt-heavy financing for Bitcoin purchases.
In a comparison of the two companies, MSTR remains a more straightforward proxy with a strong correlation to Bitcoin price but is also vulnerable in downturns. MSTY, on the other hand, involves a more aggressive and complex financing strategy, leading to potentially higher volatility and risk.
| Aspect | MSTR (MicroStrategy) | MSTY (Strategy© / Strategy Inc.) | |-----------------------------|--------------------------------------------|-------------------------------------------------------| | Bitcoin Holdings | ~226,331 BTC (~$27.6B at ~$122K BTC) | ~607,770 BTC (~$70B USD) | | Stock Performance in Bull Run| Strong rally: +14.8% in 5 days; ~98% YTD | Extraordinary gains tied to Bitcoin, but very high risk| | Financing Method | Primarily equity and Bitcoin holdings | Uses convertible bonds, preferred shares for BTC buy | | Stock-to-Bitcoin Premium | Historically high but recently declined | mNAV premium fell from 3.4x to 1.6x, prompting strategy shift | | Analyst Sentiment | Positive but with drawdown risk in bearish cycles | Caution due to debt strategy and potential for major declines | | Market Identity | High-beta Bitcoin proxy equity | Bitcoin treasury company with aggressive funding strategy |
In a Bitcoin bull run, MSTR tends to strongly outperform due to its heavy Bitcoin holdings, which act as a high-beta equity proxy for Bitcoin exposure. However, both companies are subject to the volatility of the Bitcoin market and the risks associated with their respective financing strategies.
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