Strategy (MSTR) Stock Slides 19%, Analyst Expects Further Declines

Strategy (previously MicroStrategy), the software firm co-founded by Bitcoin (BTC)  bull Michael Saylor has seen its stock, MSTR, take a considerable hit plummeting by nearly 20% since last month, in line with the broader market correction. 

This downward trend is expected to persist, according to Gus Galá, an analyst at Monness, Crespi, Hardt, who recently reiterated a Sell rating on the stock with a price target set at $175.

Analyst Cautions Against Long Positions In Strategy

On Thursday, shares of Strategy fell an additional 2.4%, closing at $336.48. The company has attracted considerable attention for becoming the largest corporate holder of Bitcoin, with its Bitcoin treasury surpassing the 600,000 figure. 

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Despite the recent selloff, Strategy’s stock has seen major growth, climbing over 140% in the past year, primarily due to Bitcoin reaching new highs beyond $120,000. However, Galá warns that the volatility associated with Bitcoin poses significant risks. 

He argues that companies with large Bitcoin treasuries are indicative of a later stage in the Bitcoin market cycle. For Strategy’s stock to defy this trend, Bitcoin would need to break free from its historical pattern of boom-and-bust cycles and sustain a prolonged bull run.

Historically, there have been times when Strategy’s market capitalization exceeded its actual Bitcoin holdings by more than double. Currently, with a market cap-to-Bitcoin ratio of 1.34-to-1, Galá suggests that while investors shouldn’t increase short positions, they should also refrain from taking long positions.

He believes that the market cap multiple is likely to decline, driven in part by skepticism in the credit markets regarding the debt Strategy has issued to finance its Bitcoin acquisitions.

Crypto Stocks Suffer Setbacks

Galá also expressed doubt that credit rating agencies will be inclined to assign investment-grade ratings to Strategy’s treasury strategy, especially in the near term. This skepticism stems from the fact that the company’s profits are largely unrealized gains from its Bitcoin holdings. 

Securing an investment-grade rating could potentially allow Strategy to issue and repay its debt under more favorable terms, but this would require Bitcoin to be perceived as a more stable digital asset, akin to gold.

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After reaching a new record price just above $124,000, the market’s leading cryptocurrency has seen its valuation drop 9% from all-time high levels currently attempting to consolidate between $112,000 and $113,000. 

Beyond Strategy, crypto stocks have also seen their valuations drop. On Thursday, shares of USDC issuer Circle (CRLC) dropped 4% after the initial excitement following the firm’s initial public offering (IPO).

US-based cryptocurrency exchange Coinbase (COIN) saw its shares drop toward the key $300 support, meaning a 2.5% decline compared to Wednesday’s trading session. 

Featured image from DALL-E, chart from TradingView.com