Strategy, formerly known as MicroStrategy, co-founded by Bitcoin (BTC) advocate Michael Saylor, has experienced a significant decline, with its stock, MSTR, dropping nearly 20% over the past month amid a wider market correction.
This bearish trend is anticipated to continue, according to Gus Galá, an analyst at Monness, Crespi, Hardt, who has reiterated a Sell rating on the stock, setting a price target at $175.
Analyst Warns Against Long Positions in Strategy
On Thursday, Strategy’s shares slipped another 2.4%, closing at $336.48. The company has garnered attention for being the largest corporate holder of Bitcoin, with its treasury exceeding 600,000 BTC.
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Despite the recent downturn, Strategy’s stock has surged over 140% in the last year, largely due to Bitcoin hitting new milestones above $120,000. However, Galá cautions that the associated volatility of Bitcoin presents considerable risks.
He contends that firms with substantial Bitcoin holdings indicate a later stage in the Bitcoin market cycle. For Strategy’s stock to diverge from this trend, Bitcoin would need to break free from its historical boom-and-bust cycles and maintain a sustained bull market.
Historically, there have been instances where Strategy’s market capitalization surpassed its actual Bitcoin holdings by more than twofold. Currently, with a market cap-to-Bitcoin ratio of 1.34-to-1, Galá suggests that while investors should avoid increasing short positions, they should also refrain from initiating long positions.
He believes the market cap multiple is likely to decrease, partly due to skepticism in credit markets regarding the debt Strategy has incurred to finance its Bitcoin purchases.
Crypto Stocks Experience Declines
Galá also voiced concerns that credit rating agencies may be reluctant to assign investment-grade ratings to Strategy’s treasury strategy, particularly in the short term. This skepticism arises from the fact that the company’s profits are largely composed of unrealized gains from its Bitcoin assets.
Obtaining an investment-grade rating could enable Strategy to secure and repay its debt on more favorable terms, but this would necessitate Bitcoin being regarded as a more stable digital asset, comparable to gold.
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After reaching a record price just above $124,000, the leading cryptocurrency has seen its valuation tumble 9% from peak levels, currently attempting to stabilize between $112,000 and $113,000.
Besides Strategy, other crypto stocks have also witnessed valuation declines. On Thursday, shares of USDC issuer Circle (CRLC) fell by 4% following initial enthusiasm surrounding the firm’s public offering (IPO).
The US-based cryptocurrency exchange Coinbase (COIN) saw its shares drop towards the crucial $300 support level, representing a 2.5% decline compared to the previous trading session.
Featured image from DALL-E, chart from TradingView.com
