MicroStrategy action turns bullish with MSTR, a Bitcoin proxy for institutional investors

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MicroStrategys stock, MSTR, is gearing up for a massive bull run in the coming sessions.

So, shows a technical setup, called inverted head and shoulder, which has a habit of predicting upward movements with an accuracy of 83.44%, according to research from Samurai Trading Academy. MSTR appears to have formed a similar bullish structure, as shared independent market analyst Bob Loukas.

MicroStrategy daily stock chart with inverted head and shoulder setup. Source: Bob Loukas, TradingView

In detail, an inverted head and shoulders (IH&S) occurs when the price forms three consecutive troughs, the middle one (head) deeper than the other two (shoulders). During this time, all hollows are suspended at a ceiling price (neckline).

Traditional chartists view IH&S as bullish if the price breaks the neckline with higher volumes. In doing so, the price is expected to increase by as much as the distance between the bottom of the middle troughs and the neckline.

Applying the classic definition to the MSTR chart, the next profit target for the stock appears close to $ 1,478, almost double the current bid range.

Is MSTR a shortcut to gain visibility on Bitcoin?

The upside outlook for MSTR emerges as it continues to remain positively correlated with Bitcoin (BTC), a highly volatile cryptocurrency being propagated like digital gold by its diehard enthusiasts.

MicroStrategy holds 105,085 BTC worth around $ 5.23 billion as the price of Bitcoin drops to $ 50,000. In fact, the Nasdaq-listed company’s exposure to Bitcoin has made MSTR a quasi-proxy for the flagship cryptocurrency.

Chart of daily MSTR prices against BTC / USD. Source: TradingView

MSTR has gained momentum, especially among aggressive traders, those with a greater risk appetite with its year-to-date returns at 65.21%.

At the same time, Bitcoin prices soared 68.22%, with many analysts now expecting BTC / USD rates to double by the end of 2021 to reach $ 100,000.

But MSTR and BTC / USD showed signs of decoupling after June. During the period, MicroStrategy stock limited its downward movement against a relatively aggressive downtrend in the Bitcoin market. Financial analyst Alexander J Poulos spotted the gap, noting that it could be due to Capital Groups’ investment in MicroStrategy.

In June, the US-based financial services firm, which manages the American Funds family of mutual funds, purchased a 12.2% stake in MicroStrategy. Poulos pointed out that Capital Groups’ $ 600 million investment was an indirect way for him to gain exposure to Bitcoin.

With the SEC not approving a pure-play BTC ETF [exchange-traded fund], MSTR will continue to serve as an agent for the fund families, he said, adding:

Capital Group’s decision is not an outlier. I expect others to initiate or add to their existing positions. A high risk game

MicroStrategy has accumulated heavy debts to buy Bitcoin. Therefore, considering that it could sell its crypto holdings to meet its financial commitment to bond investors could be a potentially negative event for MSTR.

In his SeekingAlphaop-ed, Joshua Sorto, the MNCPA accountant, wrote that MicroStrategy could easily repay the debt on its first $ 650 million convertible note MSTR is already trading above $ 517 to convert the notes into shares which do not require the sale of MicroStrategy. Bitcoin inventory.

But the second convertible note has a benchmark conversion rate set at $ 1,432.46. That said, MicroStrategy is expected to have tripled its market valuation by 2027, which means MSTR is expected to rise more than 100% before the bonds mature.

For MSTR to do this, the analytics activity will need to generate cash flows of $ 125 million per quarter; at the moment it’s operating at less than half that level, Sorto said referring to MicroStrategys second quarter results.

The third note is not convertible. MicroStrategy bought 13,005 BTC with almost half a billion dollars in revenue. Thus, whether or not the company repays its debt depends mainly on the performance of Bitcoins until 2026.

Related: MicroStrategy Stock Slips After Another $ 400 Million Debt Increase Announced To Buy Bitcoin

In its statements to the US Security and Exchange Commission, MicroStrategy revealed a total of 49 risks, of which 47% relate to finance and businesses. In addition, the risk count is above the S&P average of 31.

MicroStrategy Risk Disclosure. Source: TipRanks

Poulos has admitted that he is bullish on Bitcoin for years to come, which, in extension, means he is bullish on MicroStrategy as well. Sorto also expressed a similar perspective, noting that MSTR’s association with a booming Bitcoin industry would allow the stock to maintain its long-term bullish outlook.

There are no storm clouds on the horizon, but a few clouds in the distance are worth watching, Sorto wrote.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move comes with risk, you should do your own research before making a decision.

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