Strategy May Sell Bitcoin if Downtrend Lasts Three Years

• Strategy CEO says company may sell Bitcoin in sustained three-year down cycle.
• Company establishes $1.44 billion cash reserve to cover dividend for 21 months.
• Strategy now holds 650,000 Bitcoin representing just over 3% of total supply.

Strategy CEO Phong Le stated the company may be forced to sell Bitcoin if the cryptocurrency experiences a sustained three-year down cycle. Le made the comments during an appearance on Yahoo Finance this week.

The company now holds 650,000 Bitcoin, representing just over 3% of the total supply. Strategy also established a $1.44 billion US dollar cash reserve to cover its dividend payments for 21 months.

Strategy sets conditions for potential Bitcoin sale

Le explained that Strategy maintains its Bitcoin reserve for long-term business purposes. The company built the US dollar reserve for short-term operational needs.

“We don’t want to be in a position to sell Bitcoin, but below 1x MNAV, it doesn’t make sense for us to issue equity to pay off our dividends,” Le stated. The company’s market net asset value (MNAV) closed at approximately 1.15 yesterday.

Strategy will target two plus years of cash reserves in US dollars. Le said this approach means the company doesn’t have to sell Bitcoin in normal market conditions.

“If there is literally a three-year sustained Bitcoin down cycle, a three-year sustained cycle where MNAV trades below 1x, then we may have to sell Bitcoin,” Le stated. He noted this scenario would occur around 2029 at the current trajectory.

Company raises capital through equity sales

The $1.4 billion cash reserve came from selling shares at a premium to MNAV. Le confirmed this approach is accretive to shareholders by definition.

Strategy has been following a strategy of issuing various types of preferred shares. These credit-like instruments provide another source of capital for the company. Executive Chairman Michael Saylor has previously discussed this approach.

“The idea of a perpetual preferred to buy Bitcoin is a pretty novel idea,” Le stated. He compared it to 2020 when Strategy announced it would become the first Bitcoin treasury company.

Le said it took about a year for people to understand that initial strategy. The company later added debt and became a leveraged Bitcoin treasury company.

Strategy maintains Bitcoin buying approach

Strategy has consistently purchased Bitcoin in a price-agnostic manner. Le split buyers into two categories: investors and traders.

“Traders are PhDs working at hedge funds who have a large desk with four screens in front of them and they’re making decisions at the millisecond level,” Le stated. “That’s not us. We’re investors.”

Le said Strategy buys Bitcoin when the company is able to raise capital. The company does not try to time the market or trade based on price movements.

Strategy’s average cost to purchase Bitcoin is currently above the current market price. Le stated that attempting to become a Bitcoin trader would result in losses to more sophisticated traders.

Le explained that two factors matter for Strategy’s dividend payments: Bitcoin price and the company’s equity price, which drives MNAV.

Previous scenarios showed Bitcoin experiencing massive drawdowns while Strategy’s MNAV remained above one. In these cases, issuing equity to pay dividends and buy Bitcoin remained accretive to shareholders.

“If Bitcoin price, hypothetically, goes to $40K and our MNAV is $2X, it’s actually more accretive to buy Bitcoin, issue equity to buy Bitcoin at MNAV of $2X when Bitcoin is $40K,” Le stated.

Company positions itself as operating business

Le addressed comparisons between Strategy and Bitcoin ETFs. He stated the company is not an ETF or closed-ended fund.

“We’re an operating company that creates our products as Bitcoin-backed securities,” Le stated. The company’s valuation should equal its ability to grow underlying assets, income, and business operations.

Le compared Strategy to Mag-7 tech stocks rather than closed-ended funds. The company should trade at a valuation equal to its ability to grow Bitcoin per share and operating income.

Le holds an engineering and technology background similar to Michael Saylor. He served as CFO before becoming CEO and has an MBA with extensive financial experience.