The MSTR stock has held steady in the past two months, coinciding with the ongoing Bitcoin price action.
Strategy was trading at $139 on Wednesday, up slightly from the year-to-date low of $105.
Bitcoin price has formed a big bearish flag pattern
The main reason why the MSTR stock price may continue falling in the near term is that Bitcoin has highly bearish technicals.
The three-day chart shows that the coin has slumped in the past few months, moving from a high of $126,300 in October last year to $70,516 today.
It formed a death cross pattern on February 24 as the 50-day and 200-day Exponential Moving Averages (EMA) made a bearish crossover.
Bitcoin price has remained below the Supertrend indicator, a sign that the downtrend is continuing.
Most importantly, Bitcoin has formed a bearish flag pattern, which is made up of a vertical line and an ascending channel. It is now in the ascending channel section.
A look at this chart shows that the coin formed a similar pattern a few months ago. It formed an ascending channel between November 21 and January 16.
Therefore, the coin will likely have a strong bearish breakdown, potentially to the year-to-date low of $60,000.
A drop below that level will point to more downside, potentially to the psychological level at $50,000.
Bitcoin price chart | Source: TradingView
BTC price drop will impact the MSTR stock
A Bitcoin price drop will have a major impact on Strategy, the biggest player in the treasury industry.
The company now holds 762,099 coins, currently worth over $53 billion, and the management has vowed to continue buying the coin.
A Bitcoin drop to $50,000 would bring the value of its holdings to over $38 billion.
With its market capitalisation coming in at $46 billion, the company has a market net asset value (mNAV) multiple of 0.86 and an enterprise value of 1.7.
A lower mNAV multiple means that the premium that the company had a few months ago no longer exists.
Additionally, the company continues to dilute its shareholders as it uses its stock to execute the Bitcoin trades.
As a result, its outstanding shares have jumped to over 345 million, up from 75 million a few years ago.
This dilution will continue after Michael Saylor announced plans to increase its at-the-money (ATM) by $42 billion.
It will increase the MSTR ATM by $21 billion and the STRC by an equal amount.
This means that its shareholders will continue seeing substantial dilution in the coming years.
Strategy’s business model is different than that of Tom Lee’s BitMine because it has an open-ended approach to Bitcoin buying.
BitMine has placed a target of buying 6 million Ethereum coins, while Strategy plans to keep buying in perpetuity, meaning that the dilution will continue for a long time.
MSTR stock price technical analysis
The daily chart shows that the MSTR stock price also has some highly bearish technicals.
Like Bitcoin, it has remained below the Supertrend indicator and the 50-day and 200-day Exponential Moving Averages (EMA).
MSTR stock chart |Source: TradingView
Therefore, the stock will likely continue falling, potentially to the year-to-date low of $105.
A drop below that level will point to more downside, potentially to the psychological level at $100.
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