First, it was a tiny amount of bitcoin sales; then, the purchase of several thousand BTC; and finally, today, the unloading of thousands of BTC. What’s happening at Strategy?
trategy’s (MSTR) recent bitcoin trades suggest the company is attempting to find its footing amid bitcoin’s bear-market slide, which raises questions about its capital markets strategy.
Alongside today’s news of $216 million worth of bitcoin sales, the company also disclosed that it had booked an “unrealized” loss of $8.31 billion on its bitcoin holdings in the second quarter as the price fell from about $68,000 on April 1 to close June at roughly $60,000. While it took a “realized” loss of $0.9 million. An unrealized loss occurs when the total value of an asset depreciates on the balance sheet, without selling it. Realized losses are booked when assets are sold at a price lower than their carrying amount.
The main culprit for the billions of “paper losses” thus far has been a dramatic decline in the price of bitcoin from $74,000 in late May — when Strategy sold a tiny 32 bitcoin — to below $58,000 last week. A bounce back to about the $64,000 over the July 4 weekend was cut short Monday by the sale of 3,558 bitcoin. In between, Michael Saylor and team purchased 3,657 bitcoin at significantly higher prices.
Interestingly, after a series of buys and sales over the past few weeks, the company is left with a net increase of only 69 bitcoin despite deploying roughly $20 million in additional capital, a crypto trader, KALEO, said on X. Because the company sold coins below the prices it had recently paid, the implied average cost of those additional holdings exceeded $289,000 per bitcoin, KALEO added.
Strategy now holds 843,775 bitcoin purchased at an average price of $75,476, maintaining its position as the largest publicly traded corporate holder of the cryptocurrency.
Despite the losses, today’s move to sell millions of dollars’ worth of bitcoin will likely signal to investors that Strategy will go to whatever lengths necessary to protect its dividends on its high-yielding preferred stock, Stretch (STRC), whose dividend now stands at 12% after a recent 50 basis-point increase.
Indeed, while bitcoin and Strategy’s common stock, MSTR, are lower on Monday, STRC continues to rebound from last week’s low below $75, rising another 2.1% to just shy of $90.
The ‘strategy’
Given the zigzags in strategy over the past few weeks, the company’s near-term capital allocation has become harder for investors to predict. Assuming relatively stable prices for BTC, MSTR, and STRC, it’s probably safe to say that bitcoin buys are off the table for the foreseeable future.
If that’s true, it would be a big pivot for Saylor and his team, given that he has been one of the most vocal proponents for buying bitcoin at any cost and never selling it.
As for sales, Strategy now has cash reserves exceeding 17 months of dividend coverage. Among preferred stock investors, companies with 18 months or more of coverage are considered to be in a good spot. While there may be more bitcoin sales in the coming weeks, they would seem to need to be limited in size, absent another sharp move in the markets or additional shift in Strategy’s financing needs.
While Strategy’s “strategy” has been a guessing game for investors, the bottom line for bitcoin may be that Michael Saylor’s company likely won’t provide the steady buying that helped define the digital asset’s bull-market narrative. However, the latest bitcoin disposition may also mean that it reduces the need for any further large sales, if it provides the company with enough cash to support its dividend obligations.
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