Core Financial Strength and Bitcoin Holdings
Strategy holds over $60 billion in Bitcoin, positioning it as a significant entity within the cryptocurrency ecosystem. Concerns about a potential sale of its Bitcoin holdings emerged following a statement by CEO Phong Le, who mentioned the possibility of a BTC sale as a "last resort." However, Matt Hougan, Chief Investment Officer at Bitwise, argues that Strategy has no compelling reason to sell its bitcoins, even if the value of MSTR stock experiences a decline.
While bitcoin is stabilizing and analysts are anticipating a year-end rally, Matt Hougan strongly opposes the notion that Strategy might be compelled to liquidate its substantial Bitcoin reserves due to a drop in its stock price. Hougan stated in a note released Tuesday that "There is nothing in the drop of MSTR’s price below its net asset value that would force the company to sell its bitcoins."
Hougan emphasizes that the company's financial structure is robust enough to weather market volatility, and Michael Saylor's commitment to Bitcoin remains unwavering. He further noted that a sale of assets would have a significant negative impact on the market, comparable to two years of inflows into Bitcoin ETFs, but he considers such a scenario "simply unlikely."
Several factual indicators confirm the strength of Strategy’s balance sheet, suggesting that a liquidation event is not imminent:
- •The company has $1.4 billion in available cash.
- •There is no debt maturity before 2027, providing substantial strategic flexibility.
- •With approximately $800 million in annual interest payments, the company can cover these obligations for at least 18 months without needing to sell bitcoins.
- •Strategy's average purchase price for its bitcoins is $74,436, which is approximately 24% lower than the current price of around $89,000.
These figures support Hougan’s assertion that Strategy is not facing immediate financial pressure. The company's position remains consistent with its Bitcoin accumulation strategy, which is firmly guided by its executive chairman, Michael Saylor.
External Pressures on Stock vs. Balance Sheet Strength
Recent remarks from Strategy’s CEO, Phong Le, reignited market tensions. He indicated that a partial sale of bitcoins could be considered as a "last resort solution" if the company's market capitalization fell below the value of its BTC holdings and its financing options became insufficient. He specified, "In that case, it would be justified to sell some of our bitcoin to preserve earnings per share." This statement, when taken out of context, fueled panic scenarios, despite not reflecting an immediate or probable intention.
MSTR stock has experienced a decline of 24.69% over the past 30 days. This downturn is partly attributed to an announcement from MSCI (Morgan Stanley Capital International) in October, which stated that the company could be excluded from some of its indices if more than 50% of its assets consist of cryptocurrency. Such an exclusion would necessitate index funds selling their MSTR holdings, thereby increasing downward pressure on the stock.
Matt Hougan believes these concerns are overstated, stating, "my experience with index movements shows that their impact is often less than anticipated, and largely priced in advance by the market." He recalled that MSTR's inclusion in the Nasdaq-100 in December 2023, which represented an inflow of $2.1 billion, did not lead to a significant price movement.
In response to ongoing rumors, Strategy has introduced an anti-panic indicator: direct communication regarding its financial strength. While the market remains apprehensive, the company aims to reassure stakeholders about its capacity to hold its Bitcoin reserves without liquidation. Nevertheless, the situation remains delicate, and the cryptocurrency ecosystem is closely monitoring every development.