Strategy’s Bitcoin leverage model has been highlighted, which could limit the company’s ability to continue buying BTC and potentially trigger further sales, according to Grayscale.
“A change in approach by one of the world’s largest holders of BTC has affected market sentiment,” he said Zach Pandl, head of research at Grayscale, on Thursday.
Michael Saylor’s strategy sold 32 BTC on Monday, a tiny fraction of his total holdings of 843,706 BTC, but enough to shake market sentiment as an asset he drowned for 16% of sales.
Strategy also sold $128 million worth of stock, and the stock fell 12.8% from the sale to a two-month low of $126 on Thursday.
BTC losses accelerated after Strategy was sold and STRC fell. Source: Google Finance
Pandl warned that this could have a bigger impact on Stretch ( STRC ), the company’s floating-rate equity instrument.
Stretch was designed to trade at around $100 a share and pay an 11.5% dividend, but currently trades below that price at around $95, meaning investors are demanding a higher rate of return.
If Strategy increases its dividend to compensate investors, this increases cash liabilities, potentially fueling more BTC sales and further price pressure in a negative feedback loop.
“Strategy’s leveraged business model is under pressure, and this has increased volatility for the BTC market as a whole,” Pandl said.
He added that Grayscale thinks Strategy will have “limited ability to accumulate more tokens at current stock prices for STRC and MSTR.”
Related: Saylor downplays Bitcoin’s decline as Strategy faces $11 billion loss
Gold bug Peter Schiff he said something similar on X on Thursday. If Strategy is forced to raise its dividend to bring STRC back to $100, the company “will run out of cash much sooner, pulling in Bitcoin sales to fund payments.”
Pandl concluded, stating that fewer Bitcoins in leveraged corporate holdings would be healthier for the broader market and ecosystem.
“For the health of the Bitcoin ecosystem in the long term, less BTC in leveraged DAT (digital asset treasury) balance sheets and more in diversified corporate balance sheets will be positive, in our view.”
It’s not all bad for Saylor’s strategy
Augustine Fan, a partner at crypto software firm SignalPlus, told Cointelegraph on Friday that markets are blaming Strategy’s recent selloff and STRC’s discount for fueling the latest selloff, “but the reality is that even the most ardent supporters are running out of reasons to be structurally bullish.”
“All focus will be on the MSTR situation to see how Saylor manages to deal with its liquidity problems by balancing dividend payments against STRC and DAT holding.”
Jeff Ko, chief analyst at CoinEx, told Cointelegraph that Strategy’s first Bitcoin sale was an “important psychological trigger” for this week’s selloff.
However, he said the move was more constructive than the market reaction implies, as it gives the company more flexibility.
“More flexibility around Bitcoin sales can help Strategy manage balance sheet risk more prudently, rather than being forced into a one-way accumulation strategy in all market conditions.”
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