Michael Saylor's company has been one of Bitcoin's biggest buyers. Now it might also become a seller, according to JPMorgan. That shift has the bank issuing a warning to the market.
Strategy Inc. announced it would start paying dividends on preferred stock. To fund those payments, the company can now sell some of its Bitcoin.
It authorized a sale of up to $1.25 billion in Bitcoin.
JPMorgan managing director Nikolaos Panigirtzoglou oversaw a report that calls this a new danger. The bank says one of the biggest Bitcoin buyers might now sell, adding uncertainty to the market.
Get your free investing masterclass bonus when you join Market Briefs, our free daily newsletter
"With the company's valuation inextricably linked to the price of Bitcoin, more uncertainty and volatility in crypto markets could have a negative impact on the company's valuation, thus raising the cost of issuing equity and debt to fund additional Bitcoin purchases," Panigirtzoglou said.
JPMorgan's report states that by choosing to sell Bitcoin on a selective basis to fund preferred-stock payouts and handle its financial position, Strategy created an "avoidable" two-way risk for the market.
Because Strategy is one of the dominant sources of demand in the Bitcoin market, Saylor's recalibration of his initial buy-and-hold strategy is particularly important. Strategy has bought approximately $8.2 billion of the cryptocurrency this year, accounting for roughly 70% of estimated net digital-asset flows year to date, according to JPMorgan, while its holdings represent about 4.2% of Bitcoin's total supply.
Strategy currently holds 4.2% of all Bitcoin ever created. Its stock has fallen 75% over the past year. But since the financing plan was announced this past Monday, shares jumped around 20%.
The company said it had $2.25 billion in cash after boosting its reserve. When including the $1.25 billion in Bitcoin it can sell, the firm would have enough liquidity to cover dividend payments for a little more than two years. But JPMorgan argues the company would need enough liquidity to cover two to three years of dividend payments before investors are confident that it won't need to monetize its Bitcoin holdings.
Preferred shares, which pay dividends, have a par value of $100. They traded at about $87.50 on Thursday. Bitcoin's price that day was $62,127, up 3.4%.
A slower-than-anticipated increase in U.S. jobs drove most riskier assets higher on Thursday. That came as short-dated bond yields dropped because traders bet the Federal Reserve will not need to raise interest rates soon. Typically, lower rates make volatile assets like cryptocurrencies more appealing. JPMorgan says investors need to see enough liquidity to cover two to three years of dividend payments before they feel confident Strategy won't sell more Bitcoin.
Subscribe to Market Briefs, our free daily newsletter, and claim your bonus investing masterclass
