Grayscale: Strategy is increasing its BTC selling pressure—what does that mean?

Source: Zach Pandl, Grayscale research director, compiled by: Golden Finance Claw

A series of recent moves by Strategy, a top Bitcoin treasury company, may help restore market confidence in its financing structure, and in our view, may also help Bitcoin build a more solid bottom.

Judging purely from the balance sheet, Strategy has no problems. The company holds Bitcoin worth approximately $52 billion, with debt of only about $7 billion. Its annual preferred stock dividend is less than $2 billion, and the company has ample funds to repay debt and pay out dividends.

But changes in the market environment have raised doubts from the outside about how Strategy balances multiple goals. By the end of May, the company’s U.S. dollar cash reserves fell to about $870 million, enough to cover only about six months of dividend payments (see chart). The company therefore had to raise more cash. As this happened, a string of questions emerged: Will the company issue new shares when the stock price is weak? Will it sell the Bitcoin that management had previously insisted it would not sell? Or will it harm the interests of preferred shareholders?

Strategy unveiled a brand-new operating framework at the end of June, resolving all lingering questions. The most critical point is that the company clearly stated that it will, depending on circumstances, issue additional shares and sell Bitcoin to maintain its dollar reserves and ensure sufficient funds for dividends. On July 6 (Monday), Strategy confirmed that it sold about $216 million worth of Bitcoin in the previous week. Currently, the company’s U.S. dollar reserves have increased to $2.55 billion, supporting approximately 17 months of dividends (see chart). STRC’s price rebound also indicates that investors’ confidence in the asset has notably improved.

Core conclusion: Strategy is stepping up its Bitcoin sell-off. But we believe this move can solidify market confidence in its financing structure and help Bitcoin form a more stable bottom.

Chart 1: Selling Bitcoin boosts Strategy’s U.S. dollar reserves and market confidence