Strategy (MSTR) Stock Forecast: Bitcoin Holdings Face Q2 Test as $101 Resistance Comes Into Focus

Shares of Strategy (NASDAQ: MSTR) will report its second quarter earnings later this week. Investors are focusing on the value of its bitcoin treasury, capital management and the health of its balance sheet. Strategy, previously known as MicroStrategy, is the largest corporate owner of bitcoin. Its financial performance depends more on the price of bitcoin than on its traditional software business. As of 26 July, Strategy held 843,775 bitcoin that it had bought at an average price of $75,476 per bitcoin. At the time of writing, bitcoin was trading below that price, meaning that Strategy’s bitcoin holdings were valued at approximately $53 billion to $55 billion, implying an unrealised loss of approximately $9 billion.

Bitcoin Treasury Remains the Core Investment Story

Strategy’s bitcoin position comprises about 4% of the 21 million bitcoin limit, making it the largest corporate owner of bitcoin. In recent months, however, management has moved away from simply accumulating bitcoin and has instead been more active in managing capital. Strategy sold about 3,588 bitcoin worth $216 million during late June and early July under its newly launched BTC Monetisation Program. 

Strategy stated that the company had used these proceeds to strengthen liquidity, pay dividends on its preferred shares and increase its dollar reserves. Strategy stated that the limited volume of bitcoin sold was due to a desire to continue to hold bitcoin as a strategic asset, using the monetisation programme to better manage its capital.

Q2 Earnings Will Reflect Bitcoin’s Volatility

Strategy reports second quarter earnings after market close on 30 July. The company has said that it expects to report an impairment loss of $8.32 billion from its digital assets. This loss comes from unrealised gains and losses on bitcoin under United States accounting standards, rather than realised sales of bitcoin. These losses may result in significant swings in reported earnings, but do not necessarily represent changes in cash flow or the company’s long-term strategy.

In addition to its bitcoin holdings, Strategy has continued to increase its capital base by issuing preferred securities, convertible debt and at-the-market common stock. The company has increased its dollar reserves to between $3.2 billion and $3.75 billion, which it intends to use to fund its preferred dividends and other capital needs. It also continues to make money from its core software business, generating around $120 million to $125 million per quarter. However, this contribution to the company’s market capitalisation has become relatively small.

Strategy Technical Analysis: Breakout Tests 200 EMA Resistance

MSTR has strengthened after breaking above the downtrend line that contained price action in June and early July. The stock has created higher lows since then as it consolidates above the resistance of the downtrend line.

Price is currently trading above the 50-period exponential moving average (EMA) of $96.30. The next major resistance level is the 200-period EMA of $101.30, which has served as a barrier to multiple rallies in the past. A sustained move above this level will improve the bullish case and bring price closer to $108.50, then $121.90 and finally $136.30.

Another bullish signal comes from momentum. The relative strength index (RSI) is at more than 56, which is above the mid-level of 50 but nowhere near overbought territory, suggesting that there is still room for this rally to extend.

Near term support sits at $93.40 and $81.50. A breach below the uptrend line would weaken the recovery and pave the way for a move toward $66.30. Resistance: $101.30, $108.50, $121.90, $136.30 Support: $93.40, $81.50, $66.30

Strategy Outlook

The future direction of bitcoin will be a key determinant for the performance of Strategy. The firm remains the holder of the largest corporate bitcoin reserve and is in a position to raise capital through equity or debt issuance if needed to finance the bitcoin acquisition strategy over the longer term.

The recent breakout above the downtrend line signals an improvement in the short-term trend, but to signal a more sustained shift in the underlying trend, MSTR would have to close above the 200-period exponential moving average (EMA) at $101.30.

Management’s second quarter earnings call takes place this week and the outlook on capital deployment, together with bitcoin’s price action, could prove to be a major factor driving MSTR’s share price trajectory.

ABOUT THE AUTHOR See More

Arslan Ali Butt

Lead Markets Analyst – Multi-Asset (FX, Commodities, Crypto)

Arslan Ali Butt serves as the Lead Commodities and Indices Analyst, bringing a wealth of expertise to the field. With an MBA in Behavioral Finance and active progress towards a Ph.D., Arslan possesses a deep understanding of market dynamics. His professional journey includes a significant role as a senior analyst at a leading brokerage firm, complementing his extensive experience as a market analyst and day trader. Adept in educating others, Arslan has a commendable track record as an instructor and public speaker. His incisive analyses, particularly within the realms of cryptocurrency and forex markets, are showcased across esteemed financial publications such as ForexCrunch, InsideBitcoins, and EconomyWatch, solidifying his reputation in the financial community.

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