MicroStrategy, the biggest corporate holder of bitcoin, holding almost 2.5% of the overall bitcoin supply, has seen its MSTR stock price plunging by 40% from its peak, raising concerns as Bitcoin struggles to hold above $90k. Meanwhile, the stock is currently 60% above its fair value, and this gap has started to shrink as investors may not realize they are overpaying. Does this mean that MicroStrategy’s Bitcoin buying strategy is backfiring?
Institutional Investors Cashing Out?
As per 10x Research’s analysis, MicroStrategy traded $40 billion in volume in November 2024, when Bitcoin surged past $95,000. However, the firm highlights that institutional investors likely used this opportunity to offload their positions to retail traders at inflated prices. Now, those retail buyers are facing heavy losses despite Bitcoin maintaining its price levels.
Meanwhile, Bitcoin’s recent price movements indicate that the market is entering a consolidation phase. Eventually, the cryptocurrency surged 89% between September and December 2024, mainly due to expectations of Federal Reserve rate cuts.
However, 10x Research points out that the December rate cut was seen as hawkish, signaling that the Fed may not cut rates further anytime soon. This has kept Bitcoin in a consolidation phase, increasing the risk of a further correction if the Fed maintains its cautious stance.
Bitcoin ETF Outflows Add More Pressure
Another major factor weighing on Bitcoin is the significant outflows from Bitcoin ETFs. 10x Research reports that February 2025 is shaping up to be the worst month for Bitcoin ETF outflows since its launch, with $1.3 billion exiting the market.
A significant portion of these ETF purchases was driven by hedge funds engaging in arbitrage strategies. As funding rates drop, these trades are unwinding, adding further selling pressure to Bitcoin and the broader market.
MicroStrategy’s (MSTR) Stock Declines
Despite the bitcoin price drop, MicroStrategy has continued to accumulate Bitcoin, adding $6 billion worth since December. Meanwhile, 10x Research highlights that MicroStrategy’s stock is losing its premium over its net asset value (NAV).
At its peak, MicroStrategy’s NAV premium reached 3.4x, but it has since dropped to 1.6x, suggesting a fair value of $156 per share.
While Bitcoin is still at similar levels as in November 2024 when MicroStrategy hit an all-time high of $453, but the stock has since dropped to $287, reflecting its NAV compression.
Bitcoin Must Hold These Support Levels
Bitcoin has broken below its ascending broadening wedge formation, increasing fears of a further decline. According to 10x Research, if prices fail to reclaim the wedge, Bitcoin could test MicroStrategy’s average cost of $66,300.
Technical analysis also suggests that MicroStrategy’s shares are also breaching 11-week support, adding to bearish sentiment.
With a lack of bullish catalysts and sustained selling pressure from ETF holders and hedge funds, Bitcoin’s struggle at $90,000 could lead to further declines pulling MicroStrategy down with it.
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