The MSTR stock price has pared back most of the gains it made between April and May. Strategy retreated to $122, down 38% from its May high, and the ongoing Bitcoin price action suggests it has more downside in the near term.
Bitcoin Price Presents a Major Risk to MSTR Stock
BTC price dropped to a low of $59,000 earlier this month and then started a slow comeback, eventually peaking at $67,115. There are signs that the recovery is losing momentum, which explains why it has dropped to $65,097.
Technicals suggest that Bitcoin may be ripe for a longer downward trend. For one, it remains below the 50-day and 100-day Exponential Moving Averages (EMA) and the Supertrend indicator.
Most importantly, the coin has formed an inverted cup-and-handle pattern, with the recent rebound forming the handle. Therefore, there is a risk that it will drop further, initially to the year-to-date low of $59,000, then to the psychological level of $50,000.
Bitcoin’s fundamentals have deteriorated in the past few months. The most notable is that spot Bitcoin ETF outflows have jumped. Spot Bitcoin ETFs have shed over $4 billion in assets in the last two months.
The ongoing ETF outflows are a sign that investors are rotating from the less-sexy BTC to the booming stock market. ETFs tracking stocks have added over $1 trillion this year, with the Vanguard S&P 500 ETF leading the charge with $126 billion in inflows.
The same rotation from Bitcoin to crypto is happening in other countries, such as South Korea and Japan. In South Korea, the Kospi Index has jumped by over 200% since last year. Japan’s indices, such as the Nikkei 225 and the Topix, have all jumped to record highs.
More data shows that Bitcoin’s futures open interest has plunged in the past few months. It dropped to below $50 billion from the year-to-date high of over $60 billion.
Therefore, a sustained Bitcoin price retreat will hurt Strategy, a company that holds 846,842 coins worth $55 billion. If Bitcoin drops to $50,000, these coins will be valued at $42 billion.
MSTR Stock Price Technical Analysis
The daily chart is sending bearish signals. Like Bitcoin, the MSTR share price peaked at $196 in May, where it found substantial resistance. It has now retreated, erasing all the gains made in the previous month.
Strategy has already crossed the 50-day and 100-day moving averages, and is in the process of forming a bearish flag pattern. This pattern consists of a vertical line and a horizontal channel.
Therefore, the path of the least resistance is lower, with the immediate target being at $103, the lowest level this year. A move below that support will point to more downside, potentially to the psychological level of $90.
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