The discussion about potential forced sell-offs by large Bitcoin reserve companies is a topic that often gains traction on social media, especially during times of market instability, as seen during the 2022 cryptocurrency crash. One such scenario involves MSTR, reportedly the largest Bitcoin reserve company, and whether it might be compelled to sell billions in Bitcoin assets. But how much truth is there to this speculation?
Potential Pitfalls for Reserve Companies
The next bear market or similar downturn could impose mandatory share buyback requirements on digital asset reserve companies (known as DATs) if their market net asset values (mNAV) decrease. This could force a sale of crypto assets, as seen with ETHZilla. It was the first major company to sell off its holdings during a downturn, subsequently intensifying the fall of cryptocurrency prices.
ETH reserve companies are undergoing similar pressures to ETHZilla, having entered the market during unfavorable conditions in June, including poor liquidation figures, high debt obligations, and asset cost burdens. Strategy, however, presents a different case; since 2020, it has borrowed long-term and reimbursed a substantial portion of its creditors with its acquired assets.
What Sets Strategy Apart
Companies emulating Strategy’s approach might face collapse, but Strategy itself is less at risk. It enjoys deep liquidity in its shares, secured better borrowing terms, and commands a large, less bear-market-affected investor base. These advantages make it stronger compared to its peers.
Michael Saylor’s Strategy company recently returned to prominence amid share price fluctuations and difficulties faced by similar companies. To address these issues, Strategy discussed important details to dispel fear, uncertainty, and doubt (FUD). According to its new credit rating indicator, the company boasts a 70-year dividend payment window, even if Bitcoin’s price remains constant.
“If Bitcoin falls to an average cost basis of $74,000, we still have 5.9 times our liabilities against what we call Convertible Bonds. At $25,000 BTC, this ratio stands at 2.0 times.”
According to Ki Young Ju, founder and CEO of CryptoQuant, Strategy’s ability to avoid forced sales also helps maintain Bitcoin’s critical support levels. For the company to face difficulties, market volatility would need to cease, and Bitcoin should remain stagnant at $20,000.