Zach Pandl, head of research at Grayscale, has shared insights regarding Strategy, indicating a potential sale of at least $3 billion in Bitcoin. This move is expected to address the company’s cash obligations over the next two years, which he believes could help restore some confidence in its capital structure. However, he also predicted a 50-basis-point increase in the dividend rate for Strategy’s preferred stock, STRC, which would add around $100 million to annual obligations over that same period. Pandl expressed concerns that this outcome might not bolster market confidence.
Currently, Strategy is grappling with an annual dividend obligation of about $1.2 billion, primarily driven by STRC. The preferred stock, designed to trade close to its $100 par value, has seen a significant decline in recent weeks, dropping to a low of $71.25 and reflecting a 28.75% discount to par value. Similarly, Strategy’s common stock, MSTR, also experienced a downturn, closing at $82.31 at the end of the trading week, marking a 26.86% decrease.
Pandl emphasized the urgency for Strategy to sell Bitcoin rather than raising the dividend rate for STRC, which would only exacerbate the company’s long-term financial pressures. The company is recognized as the world’s largest publicly listed corporate Bitcoin holder, with a substantial reserve of 847,363 BTC. Recent filings with the US Securities and Exchange Commission revealed that Strategy acquired 520 Bitcoin for $34.9 million in a recent week, which has raised eyebrows about its financing priorities.
A report from blockchain analytics firm CryptoQuant recommended that Strategy should halt Bitcoin purchases to focus on rebuilding its dwindling cash reserves, which have reportedly decreased by 38% this year. The latest SEC filing indicated a $300 million increase in the company’s US dollar reserve to $1.4 billion, leaving it with only about 14 months of dividend coverage, a steep decline from a previously stable seven-year cushion.
In light of these challenges, Strategy has asserted plans to continue replenishing its cash reserves to maintain the credit quality of its “digital credit” securities. Nevertheless, the firm may not be obligated to sell Bitcoin to support the price of STRC, as alternative strategies could be employed to bolster its stock stability. For instance, Bitcoin advocate Samson Mow suggested that STRC features a built-in “self-repairing mechanism.” When the stock dips below the $100 reference price, the company effectively halts new ATM (at-the-market) issuances, constraining the supply of new shares while a lower price can attract demand, potentially driving the stock price back toward par over time.
