Michael Saylor’s Strategy has faced growing pressure to sell additional Bitcoin after a recent share price decline raised concerns about the sustainability of its financing structure, according to a new report from Grayscale Research.
Summary
- Grayscale warned that Strategy may be forced to sell more Bitcoin if weakness in STRC 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 keep expanding its Bitcoin holdings has become more constrained as prices of both MSTR and STRC shares have fallen. The warning follows Strategy’s sale of 32 BTC, a move that drew attention because Saylor had spent years publicly arguing against selling Bitcoin.
The report linked the recent strain to weakness in Strategy’s preferred stock offering, STRC, which was designed to trade near $100 per share while paying an 11.5% dividend. With STRC changing hands at about $95.42, Grayscale head of research Zach Pandl said the structure creates additional pressure on the company.
Falling STRC shares increase cash flow demands
According to Grayscale, a decline below STRC’s intended trading level can force Strategy to raise the dividend offered to investors.
Higher dividend payments would increase the company’s cash obligations, potentially making future Bitcoin sales more likely if additional funds are needed.
Recent market turbulence has already weighed on Strategy-linked securities. Earlier reporting from crypto.news attributed the pressure on STRC to two developments. Strategy’s decision to sell Bitcoin was followed by a decline in BTC prices, a combination that raised questions among investors about risks tied to the company’s heavily leveraged Bitcoin accumulation model.
Adding to those concerns, STRC does not carry FDIC or SIPC protection. Strategy also provides no guarantee regarding the stock’s future market price or dividend payments.
Despite those risks, investor demand helped STRC grow rapidly. Grayscale noted that the preferred stock has reached a market capitalization of roughly $10 billion, more than three times its size at the beginning of the year. The report attributed that growth to investors seeking high yields alongside exposure to Strategy’s Bitcoin-backed business model.
The current bearish market conditions could also limit Strategy’s capacity to issue new shares and raise fresh capital for additional Bitcoin purchases. Grayscale said lower prices for both STRC and MSTR reduce the attractiveness of the company’s primary funding channels.
Bitcoin treasury accumulation remains uneven
While Grayscale sees short-term challenges for Strategy, the firm argued that the long-term impact on Bitcoin could prove constructive. The report said a reduction in Bitcoin held on highly leveraged balance sheets, combined with ownership spread across multiple corporate treasuries, may 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 every corporate Bitcoin holder has responded to market stress by reducing exposure. While Strategy sold part of its holdings, Strive Inc. increased its position. The company disclosed that it purchased another 2,500 BTC between May 23 and June 1, lifting its total holdings to 19,000 BTC.
At the same time, views on Strategy’s outlook remain divided. Standard Chartered recently said Bitcoin’s bottom is likely approaching and maintained its year-end target of $100,000. Unlike Grayscale, the bank expects Strategy to resume aggressive Bitcoin accumulation, drawing comparisons with the company’s purchasing activity after a Bitcoin sale in 2022.
Bitcoin (BTC) changed hands at $63,560 at the time of writing, representing a 2.5% decline over the previous 24 hours.
