Michael Saylor’s strategy has faced increasing pressure to sell additional Bitcoin after a recent share price drop raised concerns about the sustainability of its financial structure, according to a new report from Grayscale Research.
Summary
- Grayscale warned that Strategy could be forced to sell more Bitcoin if STRC weakness increases cash flow obligations.
- The firm said lower STRC and MSTR share prices could restrict Strategy’s ability to raise capital for additional BTC purchases.
- While Grayscale expects Bitcoin to recover, Standard Chartered believes Strategy will resume aggressive Bitcoin accumulation.
Grayscale Research said the company’s ability to continue expanding its Bitcoin holdings has become more limited as the share prices of MSTR and STRC have fallen. The warning follows Strategy’s sale of 32 BTC, a move that raised eyebrows because Saylor had spent years publicly arguing against the sale of Bitcoin.
The report linked the recent tension to weakness in Strategy’s preferred stock offering, STRC, which was designed to trade near $100 per share and pay an 11.5% dividend. With STRC changing hands at around $95.42, Grayscale head of research Zach Pandl said the structure creates additional pressure on the company.
Falling STRC Stock Raises Cash Flow Demands
According to Grayscale, a drop below STRC’s forecast trading level may force Strategy to increase the dividend offered to investors.
Higher dividend payments would increase the company’s cash obligations, which could make future Bitcoin sales more likely if additional funds are needed.
The recent market turbulence has already affected the securities linked to the strategy. Earlier inform crypto.news attributed the pressure on STRC to two developments. Strategy’s decision to sell Bitcoin was followed by a drop in BTC prices, a combination that raised questions among investors about the risks related to the company’s heavily leveraged Bitcoin accumulation model.
In addition to those concerns, STRC is not protected by the FDIC or SIPC. The strategy also provides no guarantee regarding the future market price of the shares or dividend payments.
Despite those risks, investor demand helped STRC grow rapidly. Grayscale noted that the preferred stock has reached a market capitalization of about $10 billion, more than three times its size at the beginning of the year. The report attributed that growth to investors seeking high returns along with exposure to Strategy’s Bitcoin-backed business model.
The current bearish market conditions could also limit Strategy’s ability to issue new shares and raise fresh capital for additional Bitcoin purchases. Grayscale said the lower prices for both STRC and MSTR reduce the attractiveness of the company’s main financing channels.
Bitcoin Treasury Accumulation Remains Uneven
While Grayscale sees short-term challenges to the strategy, the firm argued that the long-term impact on Bitcoin could prove constructive. The report says that a reduction in Bitcoin held on highly leveraged balance sheets, combined with ownership spread across multiple corporate treasuries, can support a healthier market structure over time.
Grayscale also expects Bitcoin prices to recover in the coming months, although the firm said some crypto assets benefiting from regulatory developments could outperform during that period.
Not all corporate Bitcoin holders have responded to market stress by reducing exposure. While Strategy sold some of its holdings, Strive Inc. increased its position. The company revealed who purchased another 2,500 BTC between May 23 and June 1, bringing his total holdings to 19,000 BTC.
At the same time, opinions on the Strategy’s prospects remain divided. Recently rented standard saying Bitcoin’s bottom is likely approaching and it maintained its year-end target of $100,000. Unlike Grayscale, the bank expects Strategy to resume aggressive Bitcoin accumulation, drawing comparisons to the company’s buying activity after a Bitcoin sell-off in 2022.
Bitcoin (btc) changed hands at $63,560 at the time of writing, representing a 2.5% decline from the previous 24 hours.
