Strategic Pause Recommended for Strategy’s Bitcoin Purchases

In light of the recent market downturn, the analytical firm CryptoQuant has advised Michael Saylor’s company, Strategy, to temporarily halt its aggressive Bitcoin purchasing strategy. According to an analysis published by The Block, this pause would allow Strategy to rebuild its financial reserves amid soaring dividend commitments and mounting unrealized losses on their Bitcoin investments.
The advisory comes after the company’s preferred shares plummeted by 17.5%, hitting $82.50 — considerably below their nominal value of $100. Julio Moreno, CryptoQuant’s Head of Research, highlighted that the bear market coincided with significant liquidity depletion in the firm. Particularly concerning was a recent buyback of senior convertible bonds worth $1.5 billion that severely diminished the company’s financial cushion.

Financial Strain from Rising Dividend Obligations

Moreno noted that as STRC issued more shares to fund new Bitcoin purchases, its dividend obligations surged from around $300 million at the start of the year to approximately $1.2 billion. He estimates that dividend coverage has dropped dramatically from over seven years down to just 14 months now.
To regain a secure 24-month dividend payout period, Strategy needs roughly $2.8 billion in cash reserves—almost double what they currently possess.

Avoiding Forced Cryptocurrency Liquidation

Analysts caution against selling cryptocurrency under current conditions:
“Forced sales of Bitcoin at present prices could lock in these losses on a large scale and erode shareholder value,” Moreno emphasized.
With around $10.6 billion in unrealized losses and all acquisitions between 2024 and 2026 operating at a deficit, it is crucial for Strategy to avoid liquidating assets under pressure.

Proactive Risk Management Recommendations

CryptoQuant analysts have offered three main recommendations for Strategy’s management:
– Cease aggressive accumulation of Bitcoin until cash reserves and dividend coverage are back at safe levels.
– Develop a systematic approach for timing future purchases.
– Establish mechanisms for profit-locking; during future bull markets, partial sales of Bitcoin can help reduce debt load and create “dry powder” for investing during downturns.
Ki Young Ju, CEO of CryptoQuant, criticized Strategy’s existing practices via his social media platform post:
“Continuous purchase of Bitcoins under current seller pressure looks more like ‘liquidity absorption’ than growth stimulation,” he stated.
He added that while realized capitalization increased by $467 billion over two years, the asset price fell by 1% due merely to funds being redistributed among market participants.
Ju asserts that constant price support prevents full market cleansing through weak player capitulation and reset, which has led the top cryptocurrency into an extended sideways trend spanning nearly two years.
Michael Saylor and his company were previously accused by Peter Schiff of misleading investors amidst STRC’s decline.