Strategy’s Bitcoin Model Under Pressure, Grayscale Warns

Strategy’s leveraged Bitcoin model is stressed, which could limit the firm’s ability to keep buying BTC and potentially force further sales, according to Grayscale.

“The shift in approach from one of the world’s largest BTC holders has weighed on market sentiment,” said Zach Pandl, Grayscale’s head of research, on Thursday. 

Michael Saylor’s Strategy sold 32 BTC on Monday, a tiny fraction of its total holdings of 843,706 BTC, but enough to rattle market sentiment as the asset has tanked by 16% since the sale. 

Strategy also sold $128 million worth of shares, and its stock value has declined by 12.8% since the sale to a two-month low of $126 on Thursday. 

BTC losses accelerated after Strategy sold and STRC declined. Source: Google Finance

Pandl warned this could have a greater impact on Stretch (STRC), the firm’s variable rate preferred equity instrument.

Stretch is designed to trade at a share price of around $100 and pay a dividend of 11.5%, but it is currently trading below that at around $95, meaning investors require a higher rate of return. 

If Strategy raises its dividend to compensate investors, it increases cash obligations, potentially forcing more BTC sales and further price pressure in a negative feedback loop.

“Strategy’s levered business model is under pressure, and this has increased the volatility for the BTC market as a whole,” said Pandl. 

He added that Grayscale thinks that Strategy will have a “limited ability to accumulate more tokens at current share prices for both STRC and MSTR.”

Related: Saylor downplays Bitcoin slide as Strategy faces $11B paper loss

Goldbug Peter Schiff said something similar on X on Thursday. If Strategy is forced to increase the dividend to return STRC to $100, the company “will run out of cash much sooner, pulling forward Bitcoin sales to fund payments.”

Pandl concluded, stating that less Bitcoin in leveraged corporate holdings would be healthier for the broader market and ecosystem.

“For the health of the Bitcoin ecosystem over the long run, less BTC on levered DAT [digital asset treasury] balance sheets and more on diversified corporate balance sheets will be a positive, in our view.”

It’s not all bearish for Saylor’s Strategy

Augustine Fan, partner at crypto software firm SignalPlus, told Cointelegraph on Friday that markets are blaming Strategy’s recent sales and STRC’s discount to par for driving the latest sell-off, “but the reality is that even the most ardent supporters are running out of reason to be structurally bullish.”

“All focus will be on the MSTR situation to see how Saylor manages to handle his liquidity strains by balancing dividend payments against STRC and the DAT holdings.”

Jeff Ko, chief analyst at CoinEx, told Cointelegraph that Strategy’s first Bitcoin sale was an “important psychological trigger” for this week’s selloff. 

However, he said the move was more constructive than the market reaction implied, as it gives the company more flexibility. 

“Greater flexibility around selling Bitcoin can help Strategy manage balance sheet risk more prudently, rather than forcing itself into a one-way accumulation strategy under all market conditions.”

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