Strategy (previously MicroStrategy), the software firm co-founded by Bitcoin (BTC)\u00a0 bull Michael Saylor has seen its stock, MSTR, take a considerable hit plummeting by nearly 20% since last month, in line with the broader market correction.\u00a0<\/p>\n
This downward trend is expected to persist, according to Gus Gal\u00e1, an analyst at Monness, Crespi, Hardt, who recently reiterated a Sell rating on the stock with a price target set at $175.<\/p>\n
On Thursday, shares of Strategy fell an additional 2.4%, closing at $336.48. The company has attracted considerable attention for becoming the largest corporate holder of Bitcoin, with its Bitcoin treasury surpassing the 600,000 figure.\u00a0<\/p>\n
Despite the recent selloff, Strategy\u2019s stock has seen major growth, climbing over 140% in the past year, primarily due to Bitcoin reaching new highs beyond $120,000. However, Gal\u00e1 warns <\/a>that the volatility associated with Bitcoin poses significant risks.\u00a0<\/p>\n He argues that companies with large Bitcoin treasuries are indicative of a later stage in the Bitcoin market cycle. For Strategy\u2019s stock to defy this trend, Bitcoin would need to break free from its historical pattern of boom-and-bust cycles and sustain a prolonged bull run.<\/p>\n Historically, there have been times when Strategy\u2019s market capitalization exceeded its actual Bitcoin holdings<\/a> by more than double. Currently, with a market cap-to-Bitcoin ratio of 1.34-to-1, Gal\u00e1 suggests that while investors shouldn\u2019t increase short positions, they should also refrain from taking long positions.<\/p>\n He believes that the market cap multiple is likely to decline, driven in part by skepticism in the credit markets regarding the debt Strategy has issued to finance its Bitcoin acquisitions.<\/p>\n Gal\u00e1 also expressed doubt that credit rating agencies will be inclined to assign investment-grade ratings to Strategy\u2019s treasury strategy<\/a>, especially in the near term. This skepticism stems from the fact that the company\u2019s profits are largely unrealized gains from its Bitcoin holdings.\u00a0<\/p>\n Securing an investment-grade rating could potentially allow Strategy to issue and repay its debt under more favorable terms, but this would require Bitcoin to be perceived as a more stable digital asset, akin to gold.<\/p>\nCrypto Stocks Suffer Setbacks<\/h2>\n