Why Strategy Stock Was Sinking This Week

Key Points

• As Bitcoin went, so went the price of one of its top corporate collectors.

• A rally in the days prior to last week's Fed rate cut is quickly becoming a memory.

• 10 stocks we like better than Strategy ›

Across the past several trading sessions, a wise investment strategy would have been to avoid shares of Strategy Inc. (NASDAQ: MSTR). The institutional Bitcoin investor's stock was off by almost 13%, according to data compiled by S&P Global Market Intelligence, on weakness in its core asset. A disquieting media report about companies with such business profiles wasn't helping either.

Bitcoin blues

Over the week, Bitcoin was generally on the way down, tumbling from a price of over $115,000 apiece Sunday night to barely over $109,000 four days later.

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Investors piled into the leading crypto in advance of last week's Federal Reserve (Fed) interest rate cut, which was widely expected. Many subsequently took profits when the regulator made the snip. On top of that, Fed chairman Jerome Powell spoke of the continued threat of inflation, which might nix future chops. Crypto investors like rate cuts, as they make risky assets like coins and tokens more appealing.

More than any large, publicly traded company, Strategy is as all-in as a business can get with Bitcoin (in fact, on Monday it divulged in a regulatory filing that it amassed 850 more between Sept. 15 and Sept. 21). If the value of Bitcoin slides, all things being equal, that of Strategy will, too.

Regulatory heat incoming?

Another source of concern for Strategy and other Bitcoin accumulators is a report published Thursday in The Wall Street Journal.

Citing unidentified "people familiar with the matter," the newspaper reported that officials at two federal financial regulators -- the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) "have examined unusual trading patterns in the shares of companies that sought to make buying cryptocurrencies their core corporate strategy."

These were apparently flagged about spikes in trading volumes and significant share price rises days prior to updates on crypto portfolios and other news releases. Such moves could violate federal securities law.

The article's sources said that the SEC has warned certain companies about this, although no specific businesses were identified.

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Eric Volkman has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.