Strategy is currently holding nearly $59 billion worth of Bitcoin, a significant cryptocurrency reserve that may be utilized if market conditions necessitate it.
Phong Le, the company's Chief Executive Officer, stated in an interview with Bloomberg TV that the company might be compelled to sell a portion of its Bitcoin holdings if the stock price falls below the valuation of its Bitcoin assets.
“We really don’t want to have to utilize that Bitcoin at times when our equity value goes below that of the Bitcoin holdings,” Phong said. “Our objective is to pay the dividend into perpetuity.”
This statement from Phong followed a move by Strategy to increase its cash reserves by $1.4 billion through share sales. This capital infusion is expected to provide approximately 21 months, potentially up to two years, of financial flexibility to continue dividend and interest payments without needing to access its Bitcoin holdings.
The purpose of this cash buffer is to alleviate concerns that the company might be forced to sell Bitcoin to meet its increasing financial obligations.
Exploring Token Lending and Contingency Sales
Phong did not rule out the possibility of selling Bitcoin if the situation deteriorates. In a recent podcast, he acknowledged the "mathematical side" and the "emotional side" of such a decision, indicating that logic typically prevails. He elaborated, "There’s the mathematical side of me that says that would be absolutely the right thing to do, and there’s the emotional side of me, the market side of me, that says we don’t really want to be the company that’s selling Bitcoin. Generally speaking, for me, the mathematical side wins.”
Additionally, Strategy is exploring the option of lending out its Bitcoin holdings, marking a significant departure from its initial "buy and hold" strategy. Phong expressed enthusiasm for this prospect, stating, “When they [traditional finance firms] enter that space, and we have different counterparty, lending Bitcoin is something we would consider and I think we would be enthusiastic about.”
Strategy was originally a software company until 2020, when co-founder and current Chairman Michael Saylor initiated the conversion of corporate cash into cryptocurrency, citing concerns about inflation.
Initially met with skepticism from Wall Street, the strategy gained traction with investors seeking Bitcoin exposure. The company's stock experienced substantial growth, surging over 3,500% at its peak and outperforming major indices.
However, this trend has recently reversed, with Strategy's stock declining approximately 65% from its all-time high in November 2024, following a decrease in post-election crypto euphoria.
Concurrently, more companies have adopted the crypto treasury model pioneered by Saylor, diminishing Strategy's unique market position.
The "marked-to-market net asset value" (mNAV), which compares Strategy's value to its Bitcoin holdings, currently stands at 1.17, approaching a negative valuation that could necessitate Bitcoin sales to avoid being perceived as a "zombie stock."
Earnings Forecast Variability
In October, Strategy had projected Bitcoin to reach $150,000 by the end of 2025; this forecast has since been revised downwards to a range of $85,000 to $110,000.
The company anticipates that operating income could fluctuate significantly, ranging from a $7 billion loss to a $9.5 billion profit, depending on the final Bitcoin valuation. This variability is attributed to accounting standards requiring Bitcoin to be valued at market price each quarter. Net income projections span from a $5.5 billion loss to a $6.3 billion gain, with diluted earnings per share estimated to fall between a $17 loss and a $19 profit.
These financial projections are influencing investor sentiment. Strategy's stock saw an 8% increase on Tuesday, coinciding with a 6.5% rise in Bitcoin's price to approximately $92,000. This uptick followed a new acquisition by the company of 130 Bitcoin for $11.7 million, paid for with common shares, marking the first activity in its digital wallet after a week of dormancy.
Nevertheless, Strategy is now grappling with the implications of its role as a leveraged Bitcoin proxy. Industry observers, including analysts at JPMorgan Chase, have noted that Strategy could be removed from major equity indexes, potentially leading to billions in outflows from passive investment funds.