By 
MicroStrategy stock (NASDAQ: MSTR) took a hit yesterday, dropping 4.2% before finding support at the 200-day moving average. Although it bounced back by $2,000 from its low, Bitcoin (BTC) remains at risk of further declines, which could also impact MSTR. But Bitcoin isn’t the only challenge MicroStrategy is currently facing.
U.S. stock markets experienced a sharp decline yesterday, driven by concerns over China’s credit market. The potential collapse of property developer Evergrande, combined with a lack of intervention from the Chinese government, triggered one of the largest sell-offs in history. This exodus from equities resulted in the worst day for the U.S. market since October 2020, and unfortunately for MicroStrategy, the market’s risk-off sentiment spilled over into the cryptocurrency space.
At one point this morning, Bitcoin was down 8%, following an 8% decline the day before, bringing its total losses to nearly 25% since September 7th. This isn’t ideal for MicroStrategy, which holds approximately 114,000 BTC. MicroStrategy’s founder and CEO, Michael Saylor, is the world’s most prominent Bitcoin advocate. Despite the recent price drop, the company’s BTC holdings are still valued at nearly $5 billion, making MicroStrategy resemble a publicly-listed Bitcoin fund more than a traditional company.
Saylor’s most recent Bitcoin purchase was just last week when he added another 5,050 BTC to the company’s holdings, staying true to his strategy of averaging up and down. So far, this approach has been successful. The average cost of MicroStrategy’s Bitcoin purchases is $3.16 billion, meaning they are currently $1.7 billion in profit at today’s prices. However, not everyone shares Saylor’s enthusiasm; both the COO and CFO have sold off a significant portion of their stock over the past month. Still, Saylor remains steadfast in his belief in Bitcoin.
On the daily chart, MicroStrategy stock dropped to a low of $568.29 yesterday, bouncing back from just above the 200-day moving average at $565.67 to close the day at $588.39, down 4.2%. While the 200-day moving average is a crucial support level, there’s an even more important rising trend line from November 2020, which sits at $529 and represents the long-term bullish trend.
If MSTR closes below both the 200-day moving average and this trend line, it would be the first time in 2021, likely triggering more selling. In that scenario, the next logical target would be the July 20th low of $470. However, Bitcoin was trading at $29,000 on that date, so it would need to drop by 30% to reach that level again.
For now, it’s difficult to predict where MicroStrategy’s stock price will go next. While Bitcoin is showing some signs of recovery, the week is still young, and the market could see significant movement. Traders should be prepared for more headlines that could impact the market and lead to extreme price volatility.