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Many investors fear the day that Strategy is forced to sell its enormous hoard of bitcoin. If the 650,000 bitcoin they currently hold were dumped on the market, it would certainly impact the price of bitcoin. But is this fear justified?
What Does Strategy Say? #
The CEO of Strategy, Phong Le, has said that a sale of bitcoin is possible under very specific conditions. He explained that Strategy would only consider selling bitcoin if the company’s market capitalization falls below the value of the bitcoin it holds. Another reason would be if investors stop buying its (preferred) shares and its access to new capital dries up.
He views selling bitcoin as a last resort to meet its obligations (such as dividend payments).
How Does Strategy Actually Work? #
Strategy raises capital by selling various types of shares. It uses the proceeds to buy bitcoin. The company uses metrics to determine if this continues to add value for shareholders and if it can sustain this buying behavior.
Two key metrics are the number of bitcoin per share and the ratio between Strategy’s total market value and the value of all bitcoin it holds (mNAV). As long as this ratio is above 1, the company is considered healthy. If bitcoin’s value falls, their mNAV comes under pressure. If it drops below 1, there’s a chance they will have to use their last resort.
Impact of Strategy Selling Bitcoin #
Strategy’s stock has already lost a lot of value, which is logical given the sharp decline in bitcoin’s price. If the price of bitcoin falls below Strategy’s average purchase price, the company is effectively underwater. The question is whether it can continue to pay its annual obligations of hundreds of millions of dollars to preferred shareholders if the price of bitcoin falls even further.
Although Strategy holds a very large amount of bitcoin, it will certainly not sell all of its bitcoin at once. At the same time, bitcoin is the most liquid market, which means selling a significant amount of bitcoin doesn’t necessarily have to cause major ripples in its price.
What Do Analysts on CoinMarketCap Say? #
On CoinMarketCap, analysts have reacted to this potential sale by Strategy. Most analysts agree that a forced sale could cause short-term panic in the market, but that the price of bitcoin will ‘certainly not completely collapse and be worth $10,000.’
For example, Owen says that even the sale of all their bitcoins would only temporarily dip the market and that a resulting price of around $60,000 would be an excellent buying opportunity.
‘Moon Lambo’ believes that a sale by Strategy could herald a mass exodus of other companies and institutions. According to him, this could create a chain reaction that could play out in the very short term (even minutes to hours)—which could plunge the price into another flash crash.
Crypto Bull believes there is a lot of liquidity below the current price, meaning that sales by Strategy will be countered by buyers. According to the analysts, it won’t be that dramatic, but that doesn’t mean it will play out that way. We will see who is right, should Strategy start to offload its coins.