For Bitcoin Giant Strategy, Cash Is Key to Calming Investors: JPMorgan

Strategy’s fortunes have long been tied to Bitcoin’s price, but the company’s future appears to rest increasingly on the greenback, according to JPMorgan analysts.

As the Bitcoin-buying firm’s flagship preferred stock has ballooned beyond $10 billion in market cap, investors’ confidence has become tethered to the health of Strategy’s cash reserves—which recently shrank—as the investment bank shared in a Monday note.

“In our opinion, a rebuilding of the company’s dollar reserves might be needed to restore confidence and reduce investor concerns that the company would sell more Bitcoin to cover dividend payments,” they wrote, referring to Strategy’s disclosure a week ago.

Despite being presaged by co-founder and Executive Chairman Michael Saylor, Strategy’s decision to sell 32 Bitcoin for $2.5 million triggered the company’s worst weekly performance since November 2022—even though the sale represented a sliver of the firm’s overall stockpile.

Strategy’s move was largely symbolic, aimed at highlighting the company’s commitment to pulling any lever necessary to ensure that Stretch (STRC) receives regular distributions. The preferred stock’s annualized dividend rate has remained unchanged at 11.5% for months.

The firm’s sale raised immediate questions about whether Strategy would no longer anchor demand for Bitcoin alongside exchange-traded funds, yet the company responded to last week’s plunge by scooping up $100 million worth of Bitcoin and upping its cash balance. Meanwhile, Strategy’s stash of $53.3 billion in Bitcoin was roughly $10.7 billion underwater.

Strategy indicated that it has now earmarked $1 billion for managing debt and STRC dividends, which are now slated for a bimonthly cadence starting in July. Previously, the company only had enough cash to cover just over six months’ worth of STRC dividends, the analysts noted.

Before the company slashed its cash reserves by 61% to repurchase debt at a discount, Strategy had padded its cash cushion with as much as $2.25 billion.

As Bitcoin continued recovering from a 19-month low price, Strategy shares rose 5% intraday to $126, according to Yahoo Finance. Down from last year’s high of $457, the stock has seen year-to-date losses narrow since falling as low as $104 in early February.

JPMorgan analysts highlighted Strategy’s importance to the crypto market at large, noting that a “majority of Bitcoin’s demand [so far this year] had come from Strategy’s Bitcoin purchases,” which have totaled 171,473 Bitcoin worth $10.9 billion.

With Bitcoin falling 27% year-to-date, the analysts described weak sentiment as a “bullish contrarian signal moving forward.” However, they hitched positive expectations to clarification from Strategy on meeting dividend costs and the passage of crypto legislation in the U.S.