In a bold move amidst a turbulent market, Strategy (MSTR) has aggressively expanded its Bitcoin holdings, purchasing an impressive $835.6 million worth of the cryptocurrency. This marks the company’s most significant buying spree in four months, bringing its total Bitcoin reserves to approximately 649,870 tokens, valued at about $61.7 billion. The announcement came during a period when Bitcoin experienced one of its sharpest declines in 2023, with the asset tumbling nearly 30% from its early October peak.
The recent acquisition was primarily funded through a euro-denominated preferred offering that concluded just before the purchase. This funding source became pivotal as Bitcoin’s liquidity began to dwindle, with many retail investors stepping back from the market. This backdrop creates a risky environment for any new buying round, adding a layer of uncertainty to Strategy’s aggressive accumulation strategy.
While some traders had hoped that upcoming exchange-traded fund (ETF) approvals and less stringent regulatory news would stabilize the market, confidence has waned as Bitcoin slipped below the critical six-figure threshold. The quietness among retail wallets and the noticeable decrease in order book activity across major exchanges have heightened anxiety among investors. Digital-asset treasury companies, such as Strategy, have been especially vulnerable during periods of low liquidity since their stock values can fluctuate significantly based on their cryptocurrency holdings.
The steep drop in Bitcoin’s price has brought Strategy’s market valuation closer to the value of its Bitcoin reserves, resulting in a dramatic reduction of its market-to-net-asset value (mNAV) ratio. Previously, this premium hovered above 2.5; it has now collapsed to about 1.2. What once characterized Strategy as a high-beta Bitcoin investment has diminished interest from the momentum trading crowd, weakening the favorable feedback loop that previously bolstered the company’s valuation.
Last Thursday, Strategy successfully completed a €620 million preferred share sale, exceeding its initial target of €350 million and raising about $703.9 million after fees. The company issued 7.75 million shares of its ten percent Series A Perpetual Stream Preferred stock. The proceeds from this financing were crucial in funding its recent Bitcoin purchases, especially at a time when the pace of its acquisitions had slowed significantly.
Since Saylor transformed Strategy into a Bitcoin-centric investment entity in 2020, the foundation of this model relied heavily on robust confidence loops and increasing mNAV premiums. However, 2023 has seen these supports weaken. Similar trends can be witnessed in other crypto-related entities, such as BitMine Immersion Technologies (BMNR), Nakamoto Holdings, and ETHZilla (ETHZ).
Strategy’s most recent Bitcoin accumulation is viewed as a litmus test for market conviction. The future trajectory of the market will depend on whether significant players are inclined to engage in major buying rounds during these uncertain times, as well as how swiftly liquidity can return to the market. If bullish sentiment returns among dip buyers, it could set the stage for the next leg of recovery.
Despite the current market turbulence and Strategy’s recent challenges, analysts remain optimistic about the stock. According to data from TipRanks, the consensus rating among 14 analysts is a Strong Buy, with 12 recommending the stock as a Buy, two suggesting a Hold, and no analysts advising a Sell. The average price target for the stock is projected at $524.08, indicating a potential upside of roughly 164% from its recent closing price.
