Grayscale: The leveraged Bitcoin accumulation model by Strategy is facing its first pressure test.
According to Grayscale Investments, the leveraged Bitcoin accumulation model by Strategy is under significant pressure. This could limit the company's ability to continue stacking more Bitcoin and may even lead to further sell-offs.
"The shift in approach by one of the largest Bitcoin holders in the world has negatively impacted market sentiment," said Zach Pandl, Head of Research at Grayscale, on Thursday.
Michael Saylor's company sold 32 BTC on Monday. While this is just a tiny fraction of their total holdings of 843,706 BTC, the move was enough to spook the market, especially with Bitcoin's price dropping about 16% since the sale.
Aside from dumping Bitcoin, Strategy also offloaded shares worth $128 million. The company's stock price has tanked by 12.8% since then, dropping to $126/share on Thursday, marking a two-month low.
Mr. Zach Pandl warned that this issue could have a stronger impact on Stretch (STRC), the preferred stock with a variable interest rate of Strategy.
STRC is designed to trade around $100/share and pay a dividend of 11.5%. However, the stock is currently trading around $95, indicating investors are demanding a higher yield to hold it.
If Strategy has to raise its dividend to attract investors and bring STRC back to the $100 mark, the company's cash obligations will increase. This could force the company to sell more Bitcoin, thereby adding downward pressure and creating a negative spiral.
Pandl remarked:
Strategy's leveraged business model is under pressure, and that has increased volatility across the entire Bitcoin market.
He also mentioned that Grayscale Investments believes Strategy will have 'limited capacity to continue accumulating more Bitcoin' at the current prices of both STRC and MSTR stock.
Regarding this issue, prominent Bitcoin critic Peter Schiff also shared a similar view on X on Thursday. He argued that if Strategy is forced to raise dividends to bring STRC back to $100, the company:
will run out of cash much faster, thereby accelerating the need to sell Bitcoin to fund payments.
Pandl concluded that in the long run, the Bitcoin ecosystem will be healthier if the amount of Bitcoin held on balance sheets using leverage decreases.
For the long-term health of the Bitcoin ecosystem, having less BTC on the balance sheets of digital asset treasury (DAT) using leverage and more BTC on diversified corporate balance sheets would be a positive from our perspective.
HOWEVER, NOT EVERYTHING IS NEGATIVE FOR STRATEGY
Mr. Augustine Fan, a partner at crypto software firm SignalPlus, stated that the market is blaming Strategy's recent Bitcoin sale and STRC trading below par as the reason for the sell-off.
However, he believes the deeper issue is:
Even the most die-hard supporters are running out of reasons to maintain their structural bullish stance.
Fan noted that all attention is currently focused on MSTR's situation to see how Michael Saylor will handle liquidity pressure, balancing between paying dividends to STRC and maintaining Bitcoin on the balance sheet.
Meanwhile, Mr. Jeff Ko, Chief Analyst at CoinEx, believes that Strategy's initial Bitcoin sale was a key psychological trigger for the wave of sell-off this week.
However, he believes the market's reaction is somewhat exaggerated, as this move is essentially more constructive.
Having more flexibility in selling Bitcoin will help Strategy manage balance sheet risks more prudently, rather than forcing itself into a strategy of only buying and accumulating in all market conditions.
From this perspective, Strategy's willingness to adjust its portfolio could help the company maintain better financial health in the long run, rather than becoming an organization that only buys Bitcoin regardless of market volatility.