MSTR Stock Rare Pattern Points to a Crash to $120 as Risks Remain

The MSTR stock price has moved from being one of the best-performers in Wall Street to one of the top laggards this year. Strategy shares have already plunged by nearly 50% from its highest level this year, and technical analysis suggests that the meltdown has more room to go.

MSTR Stock Price has Crashed Amid a Sell-Off in DATs

There are several reasons why the MSTR stock price has crashed this year. One of the most notable developments is that the Digital Asset Treasury (DAT) industry has become highly saturated, with the number of companies holding Bitcoin in their portfolios increasing to over 170.

A closer look at some of these companies reveals that most of them were already in trouble before their Bitcoin purchases, which they believed would help them achieve the same success that Strategy had achieved. This includes popular companies like Trump Media (DJT) and GameStop (GME).

The other main reason the MSTR stock price has plunged is concerns about its elevated valuation.

Strategy, unlike many other companies, is relatively easy to value as it has just two businesses: its technology business and its Bitcoin accumulation arm.

Analysts typically value the company’s software business at around $1 billion, while its Bitcoin holdings are estimated to be worth $67.8 billion. Added together, its two assets are estimated at about $68.8 billion. However, the company has less than $100 million in cash and over $8 billion in debt, meaning that its real value is smaller than that.

MicroStrategy is Falling Amid a Valuation Reset

Therefore, the ongoing MSTR stock price crash is likely because of the valuation reset. Data shows that the market net asset value (mNAV) has dropped from 3.5 in November last year to 1.02 today.

Strategy has an enterprise value of $84 billion, meaning that its NAV based on this multiple is 1.24, also much lower than the year-to-date high of over 3.

Therefore, there is a risk that the MSTR stock price will continue falling in the near term as the NAV multiples drop to 1 and below. Such a move will be in line with other companies like Metaplanet and MicroCloud Hologram.

Strategy’s stock price has also crashed because of its ongoing struggles to raise cash. Last week, the company announced that it would launch a new euro-dominated STRE stock offering.

To do this, the company proposed offering 3.5 million shares of the Series A Stream Preferred Stock. It will pay a dividend of about 10%, with the cash coming from share sales, meaning that ordinary investors are expecting substantial dilution in the near term.

Strategy investors have undergone substantial dilution in the past few years, as the outstanding shares have increased from 75 million five years ago to 267 million today.

This dilution was fine when the stock was rising, but now, with it crashing, many investors are opting to dump the stock.

At the same time, many investors have begun shorting the company, with short interest rising to nearly 10%.

Strategy Stock Price Technical Analysis

The daily timeframe chart indicates that the MSTR stock price has been in a strong downward trend over the past few months, declining from a high of $456 in July to $240 as of today.

A closer look reveals that it has formed an inverse cup-and-handle pattern, with its lower side at $243 and its upper side at $456. The distance between the upper side and the lower side is about 48%. Measuring the same distance from the lower side yields a target of $120, which is approximately 48% below the current value.

Still, on the positive side, the falling MSTR stock price may see a boost if the Bitcoin price continues rising as it is doing today. Such a move will push investors to buy the dip as the value of its Bitcoin holdings rise.