Strategy's Bitcoin Loss: Risks of Stock Issuance and Alarming Technical Signals

With the Bitcoin price near $69.000, Strategy is facing an unrealized loss in value on its substantial crypto investments, while the company's founder shows no signs of restraint.

Michael Saylor, the founder of Strategy, recently shared a striking post on social media: a chart with an orange dot, a graphical indicator his company uses to signal a new round of Bitcoin purchases. The message, with the short caption “back to work”, followed a week in which Strategy remained without purchases.

The company is expected to confirm the exact amount of Bitcoin purchased in its weekly disclosure soon.

Strategy, formerly known as MicroStrategy, currently holds 762.099 Bitcoin. Based on the current market price, this amount is worth approximately $51 billion. Since the company paid an average of $75.699 per Bitcoin, this means that the current market price represents a loss of approximately 11%.

To enable continued purchases, Strategy relies on the sale of both common and preferred stock to raise capital. There are reports stating that the company still has billions of dollars in available share offerings that can be sold at full price.

One of the preferred stock programs, known as STRC, has recently raised sufficient capital to independently purchase more than 1.800 Bitcoin. However, the math is becoming increasingly difficult to ignore. The net asset value (NAV) of the shares has since dropped below 1, implying that the market no longer values ​​the shares higher than the actual value of the Bitcoin the company holds.

When these premiums disappear, it becomes less attractive to buy shares instead of simply buying Bitcoin. Continuous share issuances reduce the value for existing shareholders by increasing the total number of outstanding shares.

If Bitcoin rises again to its record high of $126.300, the company's current stock would be worth more than $96 billion. This makes the arguments for dilution easier to digest for those who believe in this trading strategy.

The technical situation for MSTR, Strategy's stock, is currently concerning by most common metrics. The stock traded at $120 at the end of last week, a drop from an all-time high of $542. It has broken through a key support line at $2320, a level held just a year ago.

Moreover, a 'death cross' has appeared on the chart, where the 50-day moving average has crossed below the 200-day moving average. The stock has also flourished below the Supertrend indicator since August, a pattern that, according to traditional technical analysis, points to a sustained downtrend.

Frequently Asked Questions

What is the current value of Strategy's Bitcoin holdings?
Strategy currently holds 762.099 Bitcoin, which amounts to approximately $51 billion at current prices. The company has paid an average of $75.699 per Bitcoin, meaning it is currently experiencing a loss of about 11%.

How does Strategy finance its Bitcoin purchases?
The strategy finances its purchases by selling shares, both common and preferred shares. It has billions of dollars in share offerings available, enabling them to purchase new Bitcoin when prices rise.

What are the technical signals for MSTR shares?
The technical signals for MSTR point to persistent problems, with a recent drop below key support levels and a death cross indicating a downward trend. These factors currently make the stock less attractive to investors.