Bank of America and Fidelity have reportedly increased their exposure to MicroStrategy, a move that appears to be a passive Bitcoin investment. MicroStrategy’s Bitcoin investment strategy has been playing out profitably so far into 2023, with its stock MSTR up roughly 140% year-to-date to $350 per share, its highest level since September last year. It has mirrored Bitcoin’s 90% YTD gains, maintaining a strong positive correlation with the top cryptocurrency.
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. This has led to growing institutional interest in proxy Bitcoin investments, with Bank of America and Fidelity purchasing MSTR shares throughout 2022.
MicroStrategy’s core business is enterprise software solutions, generating revenue from software licensing and subscription services. However, the company 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. While the company could sell its Bitcoin holdings to boost its balance sheet reserves, it has stated that 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.
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. Should a pullback occur, 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.
It is important to note that 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.