Story Highlights

• MicroStrategy’s stock drops 40% as Bitcoin struggles to stay above the $90K level.
• Bitcoin ETF outflows hit $1.3 billion in February, increasing selling pressure on Bitcoin.
• Bitcoin must hold $89K support, failure could push prices toward MicroStrategy’s $66,300 cost.

MicroStrategy, the largest corporate holder of Bitcoin with nearly 2.5% of the total supply, has experienced a 40% drop in its MSTR stock price as Bitcoin struggles to maintain levels above $90K. Currently, the stock trades 60% above its fair value, suggesting that investors might be overpaying for it. This situation raises questions about the effectiveness of MicroStrategy’s Bitcoin investment strategy.

Institutional Investors Cashing Out?

According to 10x Research, MicroStrategy executed $40 billion in trading volume in November 2024, coinciding with Bitcoin’s surge past $95,000. It appears that institutional investors took this opportunity to sell their positions to retail investors at inflated prices. Consequently, many retail traders are suffering heavy losses despite Bitcoin’s ongoing price stability.

Meanwhile, recent price movements of Bitcoin suggest that the market may be entering a consolidation phase. The cryptocurrency saw a remarkable 89% increase between September and December 2024 due to anticipated Federal Reserve interest rate cuts. However, a recent rate cut was interpreted as hawkish, suggesting limited future rate cuts from the Fed. This uncertainty has introduced risks of price corrections for Bitcoin.

Bitcoin ETF Outflows Add More Pressure

Significant outflows from Bitcoin ETFs have also placed pressure on the cryptocurrency. February 2025 is projected to be the worst month for ETF outflows, with $1.3 billion exiting the market. Many of these ETF commitments stemmed from hedge funds using arbitrage strategies, but as funding rates decline, these trades are reversing, exacerbating selling pressure on Bitcoin and the broader market.

MicroStrategy’s (MSTR) Stock Declines

Despite the declining Bitcoin prices, MicroStrategy has continued purchasing Bitcoin, adding a total of $6 billion since December. Nevertheless, 10x Research indicates that MicroStrategy’s stock is losing its premium over net asset value (NAV). Previously, the NAV premium reached 3.4x, but it has since fallen to 1.6x, suggesting a fair value of $156 per share. Although Bitcoin is at similar levels as in November 2024 when MicroStrategy’s stock hit an all-time high of $453, its current value has decreased to $287, reflecting a compression in NAV.

Bitcoin Must Hold These Support Levels

Bitcoin has recently fallen below its previous ascending broadening wedge pattern, increasing concerns over potential further declines. According to 10x Research, if Bitcoin fails to regain this formation, it could decline to MicroStrategy’s average cost of $66,300. Technical analysis supports this bearish sentiment, showing that MicroStrategy’s shares are surpassing 11-week support levels. Without positive catalysts and amid sustained selling from ETF holders and hedge funds, Bitcoin’s difficulties around the $90,000 mark may drag MicroStrategy’s stock lower as well.