Is the Downturn in Strategy Over? Will Bitcoin Buying Resume?

On-chain analytics company CryptoQuant stated that Strategy’s recently announced new capital management framework significantly alleviates the company’s immediate liquidity concerns, but a more disciplined model for Bitcoin buying and selling is needed.

In a report he published, CryptoQuant Research Director Julio Moreno assessed Strategy’s new plan, called the “Digital Credit Capital Framework,” as a significant shift in direction.

Moreno stated, “The Digital Credit Capital Framework is a real course correction. However, for this change to be complete, Strategy needs to clarify two more issues: a systematic model for timing Bitcoin purchases and a disciplined framework for selling during bullish periods.”

Strategy announced its five-part digital credit capital management framework on June 29. As part of the plan, the company created a US dollar reserve that can only be used for preferred stock dividends and interest payments.

The company has set a coverage target to meet at least 12 months of payment obligations for this reserve. Additionally, the dividend rate for STRC preferred shares has been increased to 12%, subject to monthly review. This step aims to bring the STRC price closer to its nominal value of $100.

The new framework also allows for the repurchase of up to $1 billion worth of preferred shares if company management deems the repurchase to be a value-enhancing activity. STRC shares are planned to be given first priority under this program.

Strategy will also be able to repurchase up to $1 billion worth of common shares of MSTR during periods when it believes the company’s shares are undervalued.

A separate Bitcoin cash-out program created as part of the plan authorizes the company to sell up to $1.25 billion worth of Bitcoin. The funds raised can be used to strengthen dollar reserves, finance dividend and interest payments, and fund share buybacks.

The company also announced that it will issue shares more cautiously when its mNAV indicator, known as the market value/net asset value ratio, approaches the 1 level.

Strategy’s new plan was announced just days after CryptoQuant released its recommendations for the company.

CryptoQuant had previously urged Strategy to pause Bitcoin purchases until its cash reserves and dividend coverage ratio were strengthened. The company also suggested developing a systematic model for timing future Bitcoin purchases and preparing a plan for selling a portion of its assets during bull markets.

According to Moreno, Strategy has largely followed the first of these recommendations.

Between June 29 and July 5, the company sold approximately 3,588 Bitcoin, generating around $216 million in revenue. These funds were used to pay preferred stock dividends and strengthen the dollar reserve.

Strategy raised $466.7 million from the sale of MSTR shares between July 6 and 12. The company did not make any new Bitcoin purchases or sales during this period.

Following these steps, Strategy’s dollar reserves increased from $1.44 billion to $3 billion. The company’s dividend coverage period also extended from approximately 14 months to 29 months.

Strategy’s Bitcoin holdings remained unchanged at 843,775 BTC, and the company has yet to conduct any preferred or common share buybacks.

STRC shares had fallen to a historical low of around $75 at the end of June. Following the announcement of the new framework and the increase in the dividend rate, the share price rose to approximately $88.

Despite this, STRC continues to trade below its nominal value of $100.

Moreno said the discount indicated that investors wanted to see Strategy sustainably implement its new financial discipline.

Moreno said, “The sustained discount indicates that the market wants to see the reserve strengthened and the new discipline maintained before fully repricing the security.”

According to CryptoQuant, two key questions remain unanswered in Strategy’s Bitcoin strategy.

The first is when the company will resume Bitcoin purchases.

Moreno stated that pausing Bitcoin purchases offered a solution to the short-term liquidity problem, but the new framework lacked a model-based rule for when accumulation should resume.

Strategy’s announced equity issuance policy, which it will implement when its mNAV ratio approaches 1, defines how the company will raise capital. However, according to Moreno, this rule does not explain when capital should be invested in Bitcoin.

Moreno stated, “Without a clear and valuation-focused model, the company risks repeating its tendency to buy Bitcoin at consistently local peaks whenever market conditions improve.”

The second point CryptoQuant highlights is whether Strategy will sell Bitcoin in the next bull market and under what rules those sales will be conducted.

Moreno stated that the current Bitcoin cash-out program has a defensive structure. The program allows Bitcoin sales to be used to finance dividends, interest, and share buybacks.

However, according to CryptoQuant, this plan does not offer a strategy for staggered selling or hedging positions as the market cycle approaches its peak.

Moreno said that such a sales framework could help the company reduce its debt, create value for shareholders, and build up cash reserves to repurchase Bitcoin during periods when the price falls to lower levels.

Moreno stated, “The disciplined selling approach throughout the market cycle, which constitutes the other half of active capital management, is still not defined.”

*This is not investment advice.