Earlier this week, Strategy unveiled a capital framework that allows selective sales of bitcoin to fund preferred dividends, while authorizing preferred stock buybacks and share repurchases. It also established a minimum cash reserve that covers 12 months of preferred dividends and interest payments. Its cash balance of $2.55 billion currently covers about 17 months.
Hougan said the episode marks a broader shift in the role of strategy within bitcoin markets. Instead of acting as the dominant one-way buyer of cryptocurrencies, the company is likely to become a more flexible player whose purchases or sales of bitcoins depend on market conditions.
Looking ahead, Bitwise believes that institutional investors, including asset managers, banks, pensions, endowments and sovereign wealth funds, are positioned to replace strategy as the main source of demand for bitcoin.
More broadly, STRC volatility is considered part of the leverage reduction that typically marks the later stages of each crypto cycle. As speculative excess is removed from the system, the market is getting closer to establishing a lasting bottom, although the exact timing remains impossible to predict, the report added.
Wall Street bank JPMorgan said Strategy’s new policy allowing selective sales of bitcoin to fund preferred dividends creates avoidable two-way risk, increasing market uncertainty and volatility.
Read more: JPMorgan Says Strategy’s Bitcoin Sales Policy Adds ‘Two-Way Risk’ to Crypto Markets
