Strategy's recent bitcoin sales should restore market confidence in the company's financing structure, help bitcoin find a more durable price bottom, and reduce bitcoin tail risks, according to Grayscale.
"On the surface there is nothing wrong with Strategy's balance sheet. The company owns ~$52 billion worth of Bitcoin and has just ~$7 billion worth of debt," Zach Pandl, Grayscale's head of research, said in a note on Monday. "Its annual dividend obligations on its preferred equities are less than $2 billion. Strategy clearly has sufficient financial resources to service its debt and dividend obligations."
The rebound in the price of STRC, Strategy's preferred stock, suggests investors are now more confident about the instrument, according to Pandl.
The comments came as Strategy (MSTR) announced Monday that it sold about 3,588 bitcoin worth about $216 million last week. The sale follows the company's recently introduced bitcoin monetization program, which allows Strategy to sell bitcoin when needed to build its cash reserves, fund preferred stock dividends and interest expenses, or support capital structure optimization. Strategy also set a minimum cash reserve target covering 12 months of preferred dividend and interest obligations.
Following the latest sale, the company's cash reserves stand at about $2.55 billion, enough to cover roughly 17 months of dividend payments, Grayscale's Pandl noted.
Pandl's view differs from JPMorgan's recent assessment of the same policy.
Last week, JPMorgan analysts said the possibility that Strategy could now become both a buyer and seller of bitcoin introduces "avoidable two-way risk" into crypto markets by increasing uncertainty and volatility. The analysts said Strategy should raise additional equity and increase its cash reserves enough to cover 24 to 36 months of dividend obligations instead of the current roughly 17 months, reducing the likelihood of future bitcoin sales.
Pandl, however, said the recent sales reduce rather than increase long-term risks by strengthening Strategy's balance sheet and improving investor confidence in its financing model.
"Strategy is selling more bitcoin. But this will restore confidence in its financing structure and help bitcoin find a more durable bottom, in our view," Pandl said.
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