Strategy (formerly MicroStrategy) disclosed on Monday that it purchased 13,627 bitcoins for $1.2 billion. This is the largest acquisition in the past six months. Recently, multiple purchases have been concentrated in the range of $88,000 to $92,000, which is now perceived as an important psychological support level for investor sentiment.
If Bitcoin clearly drops below this range, investor sentiment will weaken and the market cap premium will shrink, putting MSTR at risk of a short-term decline.
Why is MSTR executing concentrated buying at this price range?
After MicroStrategy's recent purchases, the company's Bitcoin holdings increased to 687,410 BTC. Since the announcement, the company's stock has remained largely stable. At the time of writing, MSTR stock was trading around $162.
Since December last year, MicroStrategy has made seven separate Bitcoin purchases. The average purchase price per Bitcoin varied slightly with each buy, ranging from a low of $88,210 to a high of $92,098.
By consistently buying at similar price levels, traders have established a reference point. The price fluctuation range has been limited, and this is becoming a future buying benchmark.
In response, investors will be watching to see whether the strategy continues buying within this range. If prices fall clearly below this level, investor sentiment could deteriorate, and MSTR's stock volatility may increase in the short term.
Bitcoin premium shrinks...testing ground for investor confidence
MSTR's stock tends to amplify Bitcoin's movements. Investors regard it as a leveraged investment tool for BTC, rather than a traditional software company. The company's funding approach reinforces this tendency.
MicroStrategy continues to rely on equity issuance to fund additional Bitcoin purchases. As long as the stock maintains its premium, this approach can proceed smoothly. However, if the premium narrows, the profitability structure could become more challenging.
In the past, the company has bought at prices lower than the recent purchase floor of $88,000. Even if prices fall below this level for a certain period, MicroStrategy is not required to forcibly sell part of its holdings, but the market narrative could change.
Shareholders may view the company's recent buying activity not as 'strategic accumulation,' but as purchases made at a price level where Bitcoin has struggled to break through. This could dampen investor sentiment and put pressure on the stock premium relative to Bitcoin holdings.
This premium plays a key role in investors' assessment of dilution risk.
If MSTR's stock underperforms relative to Bitcoin, future capital raising may become less attractive to existing shareholders. In such a scenario, the market could reassess the pace of MicroStrategy's buying program and its sensitivity to Bitcoin price movements.
In reality, this could result in significantly greater volatility in MSTR's stock price. This risk is most pronounced when Bitcoin tests recent lows or passes key technical support levels.
