MicroStrategy, the world’s largest publicly traded company that owns Bitcoin (BTC), has made a major shift from an aggressive growth strategy to a “defensive” mode.
The company’s recent moves indicate that it is focused on fulfilling its obligations and increasing its cash reserves, rather than purchasing new Bitcoin.
Strategy, known as the largest institutional investor in the virtual currency world, has discontinued its long-standing practice of “selling stocks and buying Bitcoin.” According to a recent CNBC report, the company sold $750 million worth of stock this week. However, the proceeds were not used to buy Bitcoin, but rather to increase the company’s cash reserves, which amounted to $2.2 billion.
The primary objective of the fund, which the company launched earlier this month, is to cover preferred dividend payments and debt interest without having to sell its Bitcoin holdings. Chairman Michael Saylor said Strategy’s stock price has fallen nearly 50% since the beginning of the year, and the company appears to be taking a more protective stance in response to market conditions.
Analysts say Strategy’s core business model has reached a tipping point. The company’s previous strategy was based on selling its own shares at a high price and using the proceeds to buy Bitcoin. But the company’s stock is currently trading below the net value of its Bitcoin holdings, which is about 80 cents.
The issue of new shares will be “dilutive” to existing investors due to the fact that the stock price has entered a discount phase.
The strategy faces an even bigger test in the coming days. MSCI is expected to decide on January 15 whether to delist the company from the index. JPMorgan estimates that the potential delisting and other index providers following suit could trigger a massive sell-off of about $9 billion.
The company’s average cost to acquire Bitcoin is around $75,000, and Bitcoin trades at around $89,000, but this buffer appears to have shrunk compared to the past. The company’s management has said it may restructure its debt before liquidation even if Bitcoin prices fall by 50%, but a decline in market confidence is seen as the biggest risk.
*This is not investment advice.
