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The MSTR stock price continued its downward trend as Bitcoin and other coins plunged on Monday. Strategy dropped by 8.15% on Monday, reaching a low of $162, which was slightly above the year-to-date low of $155.
Strategy is at risk of mNAV crashing below 1
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The MSTR share price crashed by nearly 10% on the same day that the company announced a big Bitcoin purchase. In a statement, the company said that it acquired 10,645 coins worth $980.3 million last week.
That was the second week in a row that the company made such a big purchase. Before that, the firm bought 10,624 coins valued at $962 million. These purchases have brought its total holdings to 671,68 coins currently worth over $57 billion.
The purchases are a sign that the company is highly bullish on Bitcoin and that it expects it to rebound as it has always done.
However, its continued accumulation is risky as it is coming at a rim when it’s market net-asset value (mNAV) has imploded.
Data compiled by Bitcoin Treasuries shows that the basic mNAV multiple has dropped to 0.80, much lower than where it started the year. This multiple is calculated by comparing its market capitalization and the value of its coins.
The NAV multiple, based on the diluted market capitalization, has dropped to 0.9. Most notably, the NAV based on its enterprise value, which is what most analysts watch, has dropped to 1.040.
A company’s enterprise value is calculated by looking at its market capitalization, its cash, its debt, and its preferred shares.
The significant decline in its NAV multiple has made it difficult for investors to allocate money in it because it has lost the premium it had a few months ago.
While the headline figure on Monday was the number of Bitcoins it bought, the accompanying report also showed how the company is raising money for these purchases. Its 8k report shows that the company sold shares in its preferred and common stock.
It sold 163,306 of STRF stock for $18 million, STRK for $600k, STRD for $82.2 million, and MSTR stock for $882 million. This means that MSTR investors are suffering from the ongoing dilution that has boosted the outstanding shares to over 305 million from 95 million a few years ago.
Worse, the company still has room to keep this dilution going on as it has $12 billion remaining in its ATM.
Strategy’s dilution largely made sense when Bitcoin and its stock were in a strong uptrend as the gains helped to offset it. Now, investors are facing a double whammy of more dilution and falling stock price.
Just recently, the CEO hinted that the company would consider selling some of its Bitcoin holdings to pay its dividends and debts. He then noted that the company had over $1 billion in cash to make these payments.
MSTR stock price analysis points to more downside
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A closer look at its technicals suggests that the MSTR share price has more downside to go.
The stock has dropped below the important support level at $230, which was its lowest level in the first quarter. Moving below that level confirmed that bears had prevailed.
The stock then formed the bearish flag pattern, and has now moved below the lower side, confirming the bearish outlook. A bearish flag is one of the most popular continuation signs in technical analysis.
The stock remains below all moving averages while the Relative Strength Index (RSI) and other oscillators have all pointed downwards.
Therefore, the most likely scenario is where it continues falling as sellers target the year-to-date low of $155. A drop below that level will point to more downside, potentially to the next psychological level at $100.
In the future, however, there is a possibility that the MSTR stock price will rebound as Bitcoin bounces back and as investors buy the dip.