Strategy shores up liquidity – Moneyweb

After a five-week pause on Bitcoin purchases, Strategy investors are left wondering what’s next for the largest buyer of the cryptocurrency following a tumultuous period.

Michael Saylor, the co-founder and chairman of the enterprise software maker turned Bitcoin hoarder, may provide some insight when the firm releases final results for the second quarter later Thursday. Earlier this month, Strategy said it recorded a $8.32 billion loss on digital assets in the three months to June 30. Bitcoin fell 14% during the recent quarter and was down more than 45% at the end of June from a year earlier.

The nine-month slide in the value of Bitcoin since it reached an all-time high has investors increasingly questioning the blueprint of using leverage to buy the token that Saylor pioneered in 2020. The doubts helped to trigger an overhaul that has Strategy refocused on preserving liquidity, repurchasing discounted securities and selling Bitcoin when issuing new securities becomes less attractive.

“The priority for a company like Strategy is always to show the Street that it is liquid and has the ability to weather bear markets in crypto,” said Brian Dobson, managing director of equity research at Clear Street, who has a “buy” rating on the shares. “That’s paramount at this point.”

Shares of Strategy have slumped 76% in the past year, while Bitcoin is down around 45% in the same period. The stock is still up more than 600% since Saylor first began buying the cryptocurrency.

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Strategy has tapped into a variety of securities ranging from common stock, convertible notes to preferred shares and raised around $60 billion to buy Bitcoin as an inflation hedge. Yet, the latest crypto rout has prompted the company to halt Bitcoin purchases while selling common stocks to increase its cash reserves despite risking further dilution for shareholders.

Since May, Stretch — the adjustable-rate perpetual preferred shares launched last year in a bid to replace common stock as the main financing instrument — has traded below a price level that makes the securities unprofitable to issue.

On Monday, Strategy announced that it bought back about $25 million of Stretch, also known as STRC, in the prior week. It was the first buyback of the preferred shares, which continue to trade below its $100 par value.

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Saylor’s hoarding strategy during the Bitcoin bull market had made the company’s stock among the most traded on Wall Street as investors who wanted to gain that exposure without actually buying the tokens flocked to the shares.

Recent Bitcoin sales by Strategy not only mark a departure from its long-held treasury strategy but, to some analysts, a necessary step to assuage increasingly concerned shareholders. Strategy has been building a cash reserve in part to ensure it can fund interest and dividend payments.

The shift may help determine whether Strategy weathers the crypto winter for a longer time, but a comeback in Bitcoin is still seen as the ultimate redemption for the accumulation business model.

“I think that this earnings season investors will be particularly interested in how management articulates its Bitcoin accumulation strategy going forward,” Dobson said.

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