Strategy, the largest publicly listed bitcoin holder in the United States, broke its "no bitcoin sales" principle and sold bitcoin twice this year. An analysis said Strategy's principle was a strategy that was possible when bitcoin prices were on a steady uptrend.
According to the first virtual asset report published on the 23rd by BITPLANET(049470), a domestic bitcoin virtual asset treasury (DAT·Digital Asset Treasury) corporations and KOSDAQ-listed company, Strategy recently changed its capital management policy by allowing bitcoin sales to secure funds for dividends on its perpetual preferred stock STRC (Strategy Bitcoin Yield Trust) and setting a minimum dollar reserve target.
The report assessed that Strategy's move was a decision to cope with difficulties in raising new funds due to a drop in preferred stock prices rather than a shift in its bitcoin investment strategy. In an 8-K filing submitted to the U.S. Securities and Exchange Commission (SEC·Securities and Exchange Commission) on the 6th, Strategy said it sold 3,588 bitcoins from the 29th of last month to the 5th of this month. The proceeds were used to pay preferred stock dividends and replenish dollar reserves.
At the end of May, only 32 bitcoins were sold, but in just over a month the sale volume increased by about 112 times. However, the report said the amount was only about 0.4% of Strategy's total bitcoin holdings and was not enough to deliver a direct selling shock to the market.
The reason behind Strategy's bitcoin sales is to secure funds for dividends on the perpetual preferred stock STRC. STRC is designed to be maintained at par value ($100). When the STRC share price exceeds $100, Strategy operated an "at-the-market (ATM·At-The-Market)" program that sells new perpetual preferred shares into the market and uses the funds to buy additional bitcoin.
When it falls below $100, it offers investors a high dividend yield to stimulate buying demand and keep the price close to $100. The dividend rate is adjusted monthly. Dividends are paid twice a month. As of today, STRC's dividend rate is 13.72% annually. Dividends come from cash held by Strategy.
Strategy secured dividend funds by using common stock (MSTR). It issues new common shares and sells them on the market to raise cash. But this structure is feasible when bitcoin prices rise and a premium (Premium·overvaluation) forms in Strategy's share price. A premium means a corporation's share price is higher than the value of its net worth held.
Through the perpetual preferred stock, Strategy bought additional bitcoin and increased the bitcoin value per share, and it funded dividends with the premium-priced common stock. STRC's price began to fall below par in May. Last month, it dropped to the $71 range intraday. As the price fell below par, the preferred stock ATM issuance for bitcoin purchases was halted.
To fund STRC dividends, Strategy faced a situation where it had to raise capital using common shares valued below the value of the bitcoin it held. However, issuing common stock has the drawback of diluting existing shareholders' equity. The number of the company's bitcoins increases, but so does the number of shares among which profits are distributed.
In the end, Strategy chose a stable financial strategy by selling some of the bitcoin it held. When it sold 32 bitcoins in May, news that Strategy had broken its principle sent bitcoin down from the $70,000 range to $60,000. When it recently sold more than 3,000, bitcoin rose slightly on assessments that market uncertainty had eased.
BITPLANET pointed to whether the STRC price recovers to the management's target range of $99–$100 and ATM issuance resumes as the most important point to watch going forward. It projected that changes in bitcoin sale volumes and the level at which dollar reserves are maintained will be key indicators for assessing Strategy's funding structure.