Strategy Inc., a Bitcoin aggregator, reported this Created a reserve of US$1.4 billion To fund future dividends and interest payments to allay fears that it may have to sell part of its holdings, valued at about $56 billion, if cryptocurrency prices continue to decline.
The company, based in Tysons Corner, Virginia, said in a statement on Monday that the new reserve, funded by the sale of Class A common stock, It will cover at least 21 months of dividend payments. Over time, plan to keep enough cash in reserve to cover up to two years of payments.
However, this announcement did little to allay fears. Shares fell as much as 12% on Monday. The company has funded its bitcoin accumulation by repeatedly selling common stock, a controversial strategy that dilutes existing shareholders and results in the issuance of more expensive forms of stock.
Authoritarians don’t like this
The practice of professional and critical journalism is an essential pillar of democracy. This is why it bothers those who believe they are the bearers of the truth.
The company’s mNAV — a leading indicator that compares enterprise value, which is its market capitalization plus its debt, to the value of its bitcoin holdings — stood at about 1.14 on Monday, according to its website. This raises investors’ concerns that it may turn negative soon. If that happens, CEO Fung Le suggested last week that the company could sell some of its bitcoin. Bitcoin price fell as much as 8.1%, below $84,000 on Monday.
“We can and will sell bitcoin if we need to fund a dividend payment of less than 1x mNAV.” Lu said Friday in a podcast, noting that it would only be a last resort.
Concerned about Bitcoin price decline: “Bitcoin is incorruptible but its price can be manipulated”
Formerly known as MicroStrategy, the company has transitioned from software development to primarily focusing on… Bitcoin contract. Its latest move comes as cracks deepen in the digital asset treasury model, a financial engineering scheme once celebrated for combining cryptocurrency conviction with access to public markets. As Bitcoin declines and risk appetite declines, this model breaks down. A Leverage Cycle That Was Successful – Raising Capital, Buying Cryptocurrencies, Riding the Momentum – Now they are succumbing to market stress.
The strategy’s software business does not generate enough free cash flow to cover dividends or interest payments. Bitcoin, for its part, does not pay dividends.
Strategy’s steady buildup of bitcoin has historically been viewed by investors as a sign of confidence in cryptocurrency markets, while sales are often interpreted as a sign of concern. After a week without adding to its reserve, the strategy bought 130 Bitcoin for a total price of US$11.7 million, as reported on Monday. Common stock was used to finance the purchase.
“There’s a mathematical part of me that says that would be absolutely the right thing to do, and an emotional part of the market, that says we don’t want to be the company that sells bitcoin.”Lu added on the podcast. “In general, for me, the math aspect wins.”
Low stock price strategy
A decline in Strategy’s share price reduces the premium that previously made the stock a favorite of momentum traders. The stock is down about 66% from its all-time high reached in November 2024. The index’s sponsors have taken notice. Analysts at JPMorgan Chase & Co. recently warned that the strategy could be delisted from major indexes, potentially leading to billions in outflows from passive funds.
The company also updated its annual results guidance, after issuing a forecast in October based on the assumption that Bitcoin would reach US$150,000 in value by the end of 2025. Now, given a price range of US$85,000 to US$110,000, the strategy said it expects to report operating income that could decline. From a loss of US$7 billion to a profit of US$9.5 billion. The range is very wide because accounting rules require that Bitcoin holdings be valued at the market price at the end of the quarter.
Net income could range from a loss of $5.5 billion to a profit of $6.3 billion, while diluted earnings per share could range from a loss of $17 per common share to a profit of $19, it added.