What to know:
- Strategy STRC fell below par as Saylor defended the company’s Bitcoin-backed funding model.
- Saylor said Strategy’s Bitcoin and cash reserves are $48 billion above outstanding debt.
- QCP warned that preferred dividends may need new funding if existing channels weaken.
Strategy STRC came under fresh scrutiny on June 20 after Michael Saylor defended the company’s Bitcoin-backed funding model. The preferred stock traded below its $100 par value. The decline renewed investor questions about the company’s capital structure and dividend obligations.
Saylor said in an X post that Strategy’s Bitcoin and cash holdings are approximately $48 billion above outstanding debt. Since 2022, the company has raised over $60 billion in capital, he said. Those funds were used to buy Bitcoin.
Also Read: Bitcoin Miners See 20% Losses as BTC Price Trails Mining Costs
Saylor Recalls 2022 Debt Strain as Strategy STRC Faces Pressure
Saylor compared the current situation to the 2022 crypto bear market. At that time, Strategy would have owned approximately 130,000 BTC valued at approximately $2.6 billion. Bitcoin was trading around $20,000 at the time.
During the selloff, Bitcoin went under $16,000. Strategy’s debt exceeded the value of its Bitcoin and cash by about $300 million. MSTR stock prices dropped from roughly $24 to the $13 range after splitting the stock.
Saylor said the company continued with its plan through that period. Later, he claimed that Strategy raised capital and added more than 716,000 Bitcoin. The statement responded to the critics of Strategy STRC and the financing model.
Investors are more concerned with the fall in the shares. Bitcoin critic Peter Schiff suggested that Bitcoin investors may pursue legal action against Strategy and Saylor. He further said Saylor’s push for the preferred offering violated the SEC’s marketing rules.
The debate has been about meeting the obligations of Strategy STRC. Investors are also considering the expenses of the new financing and potential common-share dilution. Those questions have remained in focus as a result of the recent decline.
Dorman Flags Bitcoin Sale Risk as QCP Warns on Liquidity
Arca Chief Investment Officer Jeff Dorman outlined one possible outcome. He stated that they might have to sell between $3 billion and $4 billion worth of Bitcoin in Strategy. This move would alleviate the capital-structure pressure and benefit the Strategy STRC holders.
Dorman estimated a 25% probability of a Bitcoin sell-off. His base case, with a 70% probability, was smaller MSTR stock sales. That approach would keep most Bitcoin holdings intact but could add pressure on common shareholders.
Market maker QCP also pointed out the liquidity risk. It estimated that resources were sufficient for approximately seven and a half months’ preferred dividends. QCP noted that additional funding mechanisms may be required if existing sources of funding become strained.
Bitcoin sales remained an option in QCP’s assessment. The firm did not say that such a sale was imminent. Its estimate was centered around the risk of funding for Strategy STRC.
However, not all Bitcoin supporters agreed with the criticism against Saylor. David Gokhshtein said Bitcoin’s market value cannot be tied to one person. He also dismissed comparisons between Strategy and the failed Terra ecosystem.
Saylor’s defense line is based on the company’s reserve position and the record of capital raising. The prospects will rely upon Bitcoin prices, financing conditions, and preferred-share performance. Those will be the factors that will shape the next phase of Strategy STRC.
Also Read: Strategy Bitcoin Falls to Record $89 as Market Sentiment Weakens
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