For some time now, Michael Saylor’s Strategy has been subject to wild criticism. Now big players like JPMorgan are starting to issue some warnings. In fact, the banking giant recently voiced Strategy’s Bitcoin sales policy.
For context, the strategy has long relied on a simple business model: Raise capital through debt and equity offerings, then use that money to purchase additional Bitcoin (BTC).
As a result, much of the circulating supply is essentially locked up rather than actively traded due to its massive trove of 847,363 BTC. But the company’s newest capital structure is now changing this dynamic.
Strategy’s new game plan raises red flags
The strategy formally allowed itself to sell a limited amount of stock in order to pay dividends on preferred stock or other financial commitments. Bitcoin. It also authorized preferred stock buybacks and initiated a $1 billion common stock repurchase program.
Although the company’s cash reserves of approximately $2.55 billion cover approximately 17 months of preferred dividends and interest expenses, JPMorgan thinks This buffer is still insufficient to completely eliminate the possibility of future Bitcoin sales.
The team led by Nikolaos Panigirtzoglou argued:
A higher 24-36 month coverage will be necessary to make investors more comfortable with the idea that the Strategy will not need to sell bitcoin in the foreseeable future (by issuing common stock to further increase dollar reserves, even if this results in common stock trading at a discount to NAV).
What is the main problem?
The underlying problem is the rise of what JPMorgan calls “two-way risk.”
In the past, the Strategy operated almost exclusively as a buyer of Bitcoin, constantly depleting supply when it raised new funds. However, new frameThe business can switch between buying and selling depending on the amount of cash it needs.
The fact that the strategy is no longer guaranteed to remove Bitcoin from the market (or even turn it into a source of supply when money is needed) creates uncertainty.
What lies ahead?
In fact, on one of the few occasions the company Bitcoin sold For operational adjustments rather than portfolio adjustments. Although its $1.25 billion in authorized sales capacity represents only a small fraction of its total assets, the psychological impact can be much greater than the sales volume.
Unfortunately, these changes are occurring at a time when US Spot Bitcoin ETFs are facing net withdrawals and the price of Bitcoin is also struggling.
The only hope at this point from now on is the passage of the CLARITY Act. It has the potential to restore market integrity and the Bitcoin price and, as a result, improve the surrounding weather Strategy.
Final Summary
- JP Morgan suggested a higher 24-36 month coverage for the Strategy rather than an actual warning.
- Although Strategy’s recent sales have been minimal, it has still caused fear and uncertainty in the market.
