MSTR stock staged a strong comeback as Bitcoin rallied. Strategy jumped to a high of $115.65 in the premarket session, its highest level since June 22nd and 40% above its lowest level this year. Similarly, the YieldMax MSTR Option Income Strategy ETF (MSTY) jumped to $13.95, much higher than the year-to-date low of $11.5.
MSTR stock jumps as catalysts align
Strategy stock jumped as Bitcoin continued its strong comeback and the Crypto Fear and Greed Index moved to the greed zone for the first time in months. It jumped to 61, up sharply from the extreme fear zone of 25 a few months ago. Bitcoin and most altcoins normally do well when there is greed in the market.
After months of consolidation, Bitcoin made a strong bullish breakout, reaching a high of $72,396, its highest level since June 1. It has soared by over 25% from its lowest level this year, and this trend may continue as it is now attempting to cross the 200-day Exponential Moving Average (EMA).
Bitcoin is rising as institutions go to a buying spree. Spot Bitcoin ETFs added over $500 million in assets on Wednesday, bringing its monthly inflows to over $1.4 billion. These funds now hold over $84 billion in assets under management.
Bitcoin is also holding steady as the US dollar index (DXY) slumps. After rising to $101.80 in June, the DXY Index has dropped by over 3% to $98.57, its lowest level since May 14 this year. BTC tends to do well when the US dollar is slumping.
A strong Bitcoin recovery would be bullish for MSTR stock because it is the biggest holder. It holds 840,447 coins currently worth over $60.5 billion.
MSTR stock faces some major risks
Despite the ongoing rebound, MSTR stock faces some major risks ahead. One of them is that it has slowly formed a bearish flag pattern, which is made up of a vertical line and a horizontal channel. This pattern often leads to a strong bearish breakout over time.
Bitcoin has remained below the important support level of $115, its lowest level in June this year. For a strong bullish breakout to be confirmed, it needs to move above that resistance. It also needs to move above the 200-day Exponential Moving Average (EMA).
MSTR technical chart | Source: TradingView
Strategy also faces the risk of the ongoing dilution, which has escalated in the past few months. On Monday, the company revealed that it increased its USD reserves by $150 million, bringing its US dollar reserves to $4.8 billion. The company is doing that by issuing new MSTR shares. It has boosted its outstanding shares from 93 million in 2022 to 351 million today.
The company will likely need to raise more money to repurchase the STRC stock and also to boost its cash reserves. It needs the cash to pay dividends to its STRC shareholders.
Also, there is a risk that Bitcoin will resume the downward trend, which will affect the value of its holdings.
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