Bitcoin prices slipped 4.5% in the past 24 hours to $69,775 per token on Tuesday. While many attribute the decline to investors parsing conflicting signals from the US and Iran about a diplomatic resolution to the Middle East war, some believe the BTC price crash over the past day is due to popular Bitcoin bull Michael Saylor’s Strategy selling 32 BTCs worth $2.5 million between 26 May and 31 May at an average price of $77,135 per token. This is Strategy’s first Bitcoin sale since December 2022.
Saylor’s move is a big deal because as the owner of the largest corporate holder of BTC, he had pledged to never sell Bitcoin holdings. Instead, he had promised to buy BTC every quarter.
Amid growing speculations linking Saylor’s Bitcoin sale to the beginning of the end for the cryptocurrency, investors should note that Strategy had to offload the token to fund dividend payments for its STRC preferred stock as it balances its crypto holdings with obligations to its preferred stockholders.
As of 31 May, Strategy held 843,706 Bitcoins, remaining the largest corporate holder globally. Alongside the BTC sale, Strategy also raised $128.3 million by selling 801,994 common shares.
Selling Bitcoin to Keep the STRC Model Alive
The STRC preferred stock is an instrument that pays holders a monthly variable dividend targeting an 11.5% annual yield. The dividend rate shifts based on the stock’s trading price relative to its $100 par value. In simple terms, the rate falls if STRC trades above $100 and increases if it falls below $100. All payments are made from Strategy’s cash reserves.
Note that Strategy uses funds raised when the STRC stock trades above its $100 par value to buy more Bitcoin, but it depends on its cash reserves to meet dividend obligations when STRC is below $100, just like last week.
While the STRC model directly links the preferred stock’s market performance and Strategy’s BTC acquisition strategy, the latest sale of 32 Bitcoins underscores the cost of maintaining this unique model. The $128.3 million funding via the sale of common shares also offers additional liquidity, which could be used for further Bitcoin purchases.
As the company continues to fund dividends without considerably lowering its Bitcoin position, monthly dividend obligations might need more mindful cash management.
While Saylor’s BTC accumulation strategy has attracted crypto investors as well as those seeking steady income, the latest transaction revealed the challenges of maintaining this model, especially when market volatility impacts the STRC stock price.
However, investors surprised by Saylor’s move should note that during Q1 earnings call this year, he mentioned the possibility of selling some BTC to pay a dividend.
‘We will probably sell some bitcoin to pay a dividend just to inoculate the market and send the message that we did it,’ Saylor had stated. Shares of Strategy fell over 5.8% on Monday and is down by another 2% during Tuesday premarket hours.
Disclaimer: Our digital media content is for informational purposes only and does not constitute investment advice. Please conduct your own analysis or seek professional advice before investing. Remember, investments are subject to market risks, and past performance does not guarantee future returns.