When the largest corporate holder of a scarce asset says that it has new rules for when it will sell some of that asset, the rest of the asset’s holders tend to pay rapt attention. On June 29, Strategy (NASDAQ: MSTR) published a new Digital Credit Capital Framework wherein it reserves the right to sell as much as $1.25 billion in Bitcoin (CRYPTO: BTC), with the proceeds of any such sales being earmarked for paying dividends, interest expenses, and for its stock buybacks.
Bitcoin fell by 2.2% in the 24 hours after the announcement. Should Bitcoin holders be looking for the sell button?
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What’s in the new framework
Strategy holds about 4% of all Bitcoin that will ever exist, making it the biggest corporate holder by far.
The $1.25 billion authorization for potential future Bitcoin sales is worth just a smidgen of its hoard of $50.6 billion at current prices. In other words, even if the company sold the full authorized amount at once, it’s unlikely that it would flood the market with supply and force prices down. So, right off the bat, there’s no five-alarm fire here that would make it worth dumping the coin in a hurry.
The sale authorization is more like a liquidity valve that can be opened or closed depending on Strategy’s most pressing financing needs, presumably aside from financing new Bitcoin purchases. The point of the potential sales would primarily be to fill a $2.55 billion cash reserve for paying preferred dividends on its Stretch shares, and making as much as $1 billion in preferred stock buybacks and up to $1 billion in common stock buybacks.
For Bitcoin holders, the substance of the new framework is that Strategy’s coin sales will become much more probable. Those sales will also be much more telegraphed, as it will be possible to predict how much money is left in the cash reserve based on the company’s earnings reports and press releases. Strategy has now spelled out the conditions under which it will sell Bitcoin, which makes a surprise less likely.
Why this isn’t a reason to sell
Strategy’s next Bitcoin sales won’t crash its price, but the entire situation does point to the business emerging as a real risk for holders.
One company controlling so much of the asset’s supply isn’t a desirable state of affairs. The investment thesis for buying it was never meant to depend so much on any one holder’s behavior in the way that it partially does now. If Strategy’s financing framework starts to weaken, the spillover into Bitcoin’s price would be real simply by virtue of how much it could unload over a protracted period, even under the new framework.
