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Shares of Strategy tumbled after the bitcoin champion launched a US dollar reserve to fund its dividends and warned that it could incur a $5.5bn loss if the price of the cryptocurrency does not rebound this year.
Bitcoin evangelist Michael Saylor has transformed Strategy from a small software company into the world’s biggest corporate holder of the cryptocurrency, buying the coin almost weekly and encouraging hordes of companies around the world to do the same.
The company has funded its bitcoin purchases using a mix of debt and equity products, many of which have promised to pay investors dividends.
But as the price of the world’s biggest cryptocurrency has fallen from record highs above $126,000 in early October to $86,000 in just over a month, Saylor’s method has come under pressure.
Strategy said on Monday it had created a $1.44bn “US dollar reserve” to fund its dividends. The reserve was financed by money raised from its share sales, and the Nasdaq-listed company said it aimed to maintain a dollar reserve that would fund “at least 12 months of its dividends”, growing to eventually cover “24 months or more” of payouts.
Shares in Strategy were down more than 11 per cent on Monday morning, and have fallen about 46 per cent this year as investors have questioned the viability of its business model.
The company buys bitcoin by issuing shares, convertible debt and new preferred equity instruments. The move highlights how Strategy is bracing for its share price to fall even further. The company will in particular need cash to repay its $8.2bn worth of convertible debt holders if its share price does not rise.
Strategy also estimated that if the price of bitcoin ends this year somewhere between $85,000 to $110,000, the company’s results for the 12 months could range between a net loss of $5.5bn and net income of $6.3bn. When the group reported third-quarter earnings on October 30, it forecast net income of $24bn for 2025.
The company holds 650,000 bitcoin, worth about $56bn, accounting for 3.1 per cent of the world’s total supply of the cryptocurrency.
Strategy’s enterprise value, the sum of a company’s equity and debt minus cash, is $67bn. Investors are focused on a company’s so-called mNAV, a metric created by Saylor that compares its enterprise value with its crypto holdings.
In its presentation, Strategy said if its mNAV falls below one, the company would sell bitcoin to fund its dollar reserve — a move that would firmly break Saylor’s philosophy of buying and holding bitcoin forever. Some companies that followed in Strategy’s footsteps and are now struggling have begun offloading their crypto tokens.
Saylor said the dollar reserve “will better position us to navigate short-term market volatility while delivering on our vision of being the world’s leading issuer of digital credit”.