Bank of America and Fidelity have increased their MicroStrategy exposure in what appears to be a passive Bitcoin investment.
MicroStrategy's infamous Bitcoin (BTC) investment strategy is playing out profitably so far into 2023.
Today, MicroStrategy's stock MSTR is up roughly 140% year-to-date (YTD) to $350 per share, its highest level since September last year. It mirrored Bitcoin's 90% YTD gains, maintaining a strong positive correlation with the top cryptocurrency.
Proxy Bitcoin investment boom
To recap, MicroStrategy is essentially a proxy for direct BTC investment without a spot Bitcoin exchange-traded fund (ETF) in the U.S. It holds 140,000 BTC worth $4.26 billion, the most by a publicly-traded company as a part of its Treasury strategy.
MSTR investors typically get their buying or selling cues from the same catalysts that drive Bitcoin market trends.
As a result, the stock has mirrored the BTC price uptrend so far in 2023, led by rush-to-safety trades amid the U.S. banking crisis and anticipation the Federal Reserve would stop hiking rates.
For instance, CNN data shows Bank of America's entities owns 86,147 MSTR shares. Similarly, Fidelity purchased 97,199 MSTR shares throughout 2022, suggesting growing institutional interest in proxy Bitcoin investments.
Coinbase's COIN, another stock offering indirect crypto exposure, has doubled in value this year as well.
MicroStrategy's core business is unhealthy
MicroStrategy is essentially an enterprise software solution company and generates its revenue from software licensing and subscription services.
The firm realized a net loss of $193.7 million during Q4/2022, up from $137.5 million a year ago, led by a Bitcoin impairment loss of $197.6 million. Furthermore, its operating cash flow was $18.2 million compared to a positive cash flow of $3.2 million in the same quarter a year ago.
Revenue isn't what you're making it out to be. If a lemonade stand does $100M in revenue and spends $99,999,999 to generate that revenue, then a $1.00 profit isn't all that amazing.
— Alby (@albyva) April 2, 2023
Microstrategy isnt far from that example. Their expense to generate that revenue leaves them with… pic.twitter.com/ZhA80tWn3J
Of course, MicroStrategy could sell its Bitcoin holdings to boost its balance sheet reserves. But the company says it will not alter its BTC buying strategy under financial stress. Instead, it employs strategies like share dilutions and debt offerings 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," says Pacifica Yield, financial blogger at Seeking Alpha, adding:
"Dilution to buy assets that you lose money on if Bitcoin returns to its near-term lows would not be a shareholder-friendly strategy."
20% correction for MSTR stock in Q2?
From a technical standpoint, MSTR has a high probability of a 20% price correction in Q2.
Related: MicroStrategy’s Saylor fuses work email address with Bitcoin Lightning
The stock's yearly rally has landed its price near a resistance range — between $320 and $340 — notorious for capping breakout attempts. Suppose a pullback occurs. Then, the price could drop toward 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.
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