Michael Saylor-led Strategy (Nasdaq: MSTR) surprised the crypto industry last month when it disclosed that it sold 32 Bitcoin for approximately $2.5 million between May 26 and May 31. It was
Michael Saylor-led Strategy (Nasdaq: MSTR) surprised the crypto industry last month when it disclosed that it sold 32 Bitcoin for approximately $2.5 million between May 26 and May 31.
It was Strategy's first Bitcoin sale since 2022 and created a lot of buzz because Saylor had often talked about never selling Bitcoin.
Related: Strategy prepares to sell up to $1.25 billion of Bitcoin
Recently, the company revealed that it may sell up to $1.25 billion worth of Bitcoin to strengthen its balance sheet as the firm's common and preferred stocks have come under stress.
The world's largest Bitcoin (BTC) treasury company said it could also authorize preferred stock repurchases and share buybacks in the future.
The firm also revealed a minimum cash reserve target that could cover 12 months of preferred dividends and interest expense. Its reserve of $2.55 billion currently covers only 17 months of obligations.
As far as Strategy's decision to allow selective Bitcoin sales to fund preferred stock dividends is concerned, JPMorgan Chase (NYSE: JPM) warned that it has introduced avoidable "two-way" risk into crypto markets.
JPMorgan analysts cautioned Strategy's decision increases uncertainty and volatility, CoinDesk reported on July 2.
As per the Wall Street bank's analysts led by Nikolaos Panigirtzoglou, the company would require a higher coverage of 24-36 months and should issue common equity to further increase dollar reserves even if this leads to the common equity trading at a discount to NAV.
This would assure Strategy investors that the firm would not need to sell Bitcoin in the future, they opined.
JPMorgan said Strategy is one of the largest Bitcoin buyers which has purchased approximately $13.7 billion worth of the cryptocurrency this year.
This is why whether the firm buys or sells Bitcoin, the movement creates unnecessary "two-way" flow risk for the market, the analysts said. For instance, its recent Bitcoin sale put the cryptocurrency under stress in late May and early June, they added.
Greater price volatility could ultimately hurt the company itself by increasing the cost of raising equity and debt to finance future Bitcoin purchases, the JPMorgan analysts warned.
Though the current bearish sentiment could prove to be a contrarian bullish signal, a stronger second half of the year would depend on Strategy expanding its dollar reserves and the U.S. approving the CLARITY Act, the analysts added.
While Strategy's common stock, MSTR, is down 34% this year and was trading at $99.93 at press time, its Variable Rate Series A Perpetual Stretch Preferred Stock (STRC) is down 12% and was trading at $87.09.
BTC/USD, Source: DecibelBitcoin, the asset whose proxy Strategy has become, is also down 30% this year and was exchanging hands at $61,503 at the time of writing, as per Decibel.
Related: Michael Saylor reveals why Strategy sold Bitcoin and why critics are wrong
