MicroStrategy’s infamous Bitcoin (BTC) investment strategy runs profitably through 2023.
Today, MicroStrategy’s MSTR stock is up about 140% year-to-date (YTD) to $350 per share, its highest since September of last year. It reflected Bitcoin’s 90% year-to-date gains, maintaining a strong positive correlation with the major cryptocurrency.
Bitcoin proxy investment boom
To recap, MicroStrategy is essentially a proxy for direct BTC investing without a Bitcoin exchange-traded fund (ETF) in the United States.
MSTR investors typically get their buy or sell signals from the same catalysts that drive Bitcoin market trends.
As a result, the action mirrored BTC’s upward price trend so far in 2023, led by safety rush trades amid the US banking crisis and anticipation that the Federal Reserve would cease. to raise rates.
For example, data from CNN show Bank of America entities own 86,147 MSTR shares. Similarly, Fidelity purchased 97,199 MSTR shares throughout 2022, suggesting growing institutional interest in Bitcoin proxy investments.
Coinbase’s COIN, another stock offering indirect exposure to crypto, has also doubled in value this year.
MicroStrategy’s core business is unhealthy
MicroStrategy is primarily an enterprise software solutions company and generates its revenue from software licensing and subscription services.
The company posted a net loss of $193.7 million in the fourth quarter of 2022, compared to $137.5 million a year ago, driven by a $197.6 million loss in bitcoin value. Moreover, his operating cash was $18.2 million compared to positive cash flow of $3.2 million in the same quarter a year ago.
Income is not what you say it is. If a lemonade stand generates $100 million in revenue and spends $99,999,999 to generate that revenue, a profit of $1.00 is not that amazing.
Microstrategy is not far from this example. Their expenses to generate this income leave them with… pic.twitter.com/ZhA80tWn3J
—Alby (@albyva) April 2, 2023
Of course, MicroStrategy could sell its Bitcoin holdings to increase its balance sheet reserves. But the company says it won’t change its BTC buying strategy in times of financial stress. Instead, it uses strategies like equity dilutions and debt offerings to raise capital to buy BTC.
“The risk here will come from its inability to buy Bitcoin with positive cash flow over the next few quarters in line with its strategy,” says Pacifica Yield, financial blogger at Seeking Alpha, adding:
“Dilution to buy assets that you lose money on if Bitcoin returns to near-term lows would not be a shareholder-friendly strategy.”
20% fix for MSTR stock in Q2?
From a technical perspective, MSTR has a high probability of a 20% price correction in Q2.
Related: MicroStrategy’s Saylor Merges Business Email With Bitcoin Lightning
The stock’s annual rally has landed its price near a resistance range – between $320 and $340 – known to cap breakout attempts. Suppose a pullback occurs. Then, 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 first quarter 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.
