MicroStrategy’s share value increases over twofold in 2023 alongside Bitcoin’s rise.

MicroStrategy’s aggressive Bitcoin (BTC) investment approach is proving to be lucrative as 2023 progresses.

As of today, MicroStrategy’s stock, MSTR, has risen approximately 140% year-to-date (YTD) to $350 per share, marking its highest point since September of the previous year. This increase aligns with Bitcoin’s 90% YTD gains, demonstrating a robust positive correlation with the leading cryptocurrency.

MSTR daily price chart featuring its daily correlation with BTC. Source: TradingView

Proxy Bitcoin investment surge

To summarize, MicroStrategy serves as a proxy for direct BTC investment in the absence of a spot Bitcoin exchange-traded fund (ETF) in the United States. The company holds 140,000 BTC valued at $4.26 billion, the largest amount held by a publicly traded firm as part of its treasury strategy.

Investors in MSTR typically derive their buying or selling signals from the same factors that influence Bitcoin market dynamics.

Consequently, the stock has reflected the BTC price uptrend thus far in 2023, driven by a flight-to-safety trend amid the U.S. banking crisis and expectations that the Federal Reserve would halt interest rate increases.

BTC/USD daily price chart. Source: TradingView

For example, CNN data indicates that Bank of America’s entities possess 86,147 MSTR shares. Likewise, Fidelity acquired 97,199 MSTR shares throughout 2022, indicating a rising institutional interest in proxy Bitcoin investments.

Coinbase’s COIN, another stock providing indirect exposure to crypto, has also doubled in value this year.

MicroStrategy’s core business faces challenges

MicroStrategy primarily operates as an enterprise software solution provider, generating revenue through software licensing and subscription services.

The company reported a net loss of $193.7 million during Q4 2022, an increase from $137.5 million the previous year, largely due to a Bitcoin impairment loss of $197.6 million. Additionally, its operating cash flow was $18.2 million, compared to a positive cash flow of $3.2 million in the same quarter a year prior.

Revenue isn't what you're making it out to be. If a lemonade stand does $100M in revenue and spends $99,999,999 to generate that revenue, then a $1.00 profit isn't all that amazing.
Microstrategy isnt far from that example. Their expense to generate that revenue leaves them with… pic.twitter.com/ZhA80tWn3J

— Alby (@albyva) April 2, 2023

While MicroStrategy could liquidate its Bitcoin holdings to enhance its balance sheet reserves, the company has stated it will not change its BTC acquisition strategy during financial difficulties. Instead, it utilizes methods such as share dilutions and debt offerings to raise capital for purchasing BTC.

“The risk here will come from its inability to buy Bitcoin with positive cash flows in future quarters as per its strategy,” noted Pacifica Yield, a financial blogger at Seeking Alpha, adding:

“Dilution to buy assets that you lose money on if Bitcoin returns to its near-term lows would not be a shareholder-friendly strategy.”

20% correction anticipated for MSTR stock in Q2?

From a technical perspective, MSTR appears to have a high likelihood of experiencing a 20% price correction in Q2.

Related: MicroStrategy’s Saylor fuses work email address with Bitcoin Lightning

The stock’s annual rally has brought its price close to a resistance zone — between $320 and $340 — known for hindering breakout attempts. Should a pullback occur, the price could decline toward its 50-3D exponential moving average (50-3D EMA; the red wave) below $260 by June.

MSTR 3-day price chart. Source: TradingView

MicroStrategy is expected to publish its Q1 earnings report by May 2.

This article does not provide investment advice or recommendations. Every investment and trading decision carries risk, and readers should perform their own research before making a decision.