Strategy Says It Will Sell More Bitcoin, Ends Full Capital Allocation to BTC Buys

Michael Saylor’s Strategy announced it will no longer use all of its newly raised capital to buy Bitcoin. Management also said the company will keep selling BTC whenever it makes financial sense. This was shared during the firm’s Q2 earnings call.

All capital raised from henceforth will now be split between buying Bitcoin and boosting the company’s U.S. dollar reserves instead of putting all of it into BTC purchases.

Strategy says it will continue selling Bitcoin and no longer allocate all new capital to BTC purchases 

Strategy said during its Q2 earnings call that it will continue selling Bitcoin when advantageous to replenish its USD reserve, fund preferred dividends and interest… pic.twitter.com/vkz6KGDxK9

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Strategy changes its Bitcoin buying plan

The Saylor-led firm has always been known for buying as much Bitcoin as possible. This was usually funded by capital raised from stock sales, convertible notes, and preferred shares.

According to the company’s Q2 earnings transcript, future capital raises will be divided between Bitcoin purchases and cash reserves, depending on market conditions. The company added that it will sell portions of its Bitcoin holdings whenever necessary.

Strategy’s CEO Phong Le noted that maintaining a strong cash position will help the firm to fund interest payments and strengthen cash reserves:

“Our intent is to sell Bitcoin for three reasons when we think it’s appropriate for the company. One, fund the U.S. dollar reserve. Two, fund dividend interest payments. Three, fund up to $2 billion in our repurchase programs.” 

It was also confirmed that Bitcoin-backed borrowing is not being considered due to concerns about margin calls and counterparty risks. This is a clear change of strategy.

Earnings show pressure from falling BTC price

The announcement came during Strategy’s second-quarter earnings report, which showed how much the decline in BTC has affected the company.

The firm reported a net loss of $8.2 billion during the quarter. Almost all of that loss came from its Bitcoin holding, which is sitting at an $8.32 billion unrealized loss. As of July 26, the company owned 843,775 Bitcoin, a 25% increase since the start of the year.

At the current BTC price, those holdings are worth $54.8 billion, compared with its purchase cost of $63.7 billion.

The results come as investors questioned the company’s complex financing structure. Over the past few months, experts have debated whether this structure can support its Bitcoin treasure. 

Cash reserves now a bigger priority for Strategy

Strategy has not made a BTC purchase in more than a month. The current break is the firm’s longest pause in its buying plan in years.

The management has instead shifted to building liquidity. The company has raised $17.06 billion through at-the-market stock offerings. It also repurchased $1.5 billion worth of convertible notes at an 8% discount while boosting its U.S. dollar reserve to $3.75 billion.

Chief Financial Officer Andrew Kang said those reserves are enough to cover preferred dividend payments and interest expenses for more than 2.1 years. The company also sold $218.4 million worth of Bitcoin under its BTC Monetization Program.

Michael Saylor said the firm remains committed to expanding what it calls its Digital Credit business despite the falling Bitcoin price.

“In the midst of this phase of muted bitcoin sentiment and market skepticism, we continue to evolve our business model and establish Digital Credit as a new asset class,” he noted.

Shares of Strategy have fallen about 75% over the past year. Bitcoin also dropped about 45% in the same period. However, the stock is still up more than 600% since the company started buying the coin.

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