Strategy Overhauls Its Bitcoin Strategy: What Investors Need to Know

Bitcoin, the world's largest cryptocurrency, has been walloped this year as the crypto winter has dragged on. Few investors have felt that more than the Bitcoin-treasury company Strategy (MSTR), which is essentially a levered play on Bitcoin. Just as leverage lifts gains on the way up, it also exacerbates losses on the way down. Strategy's stock is down close to 45% this year. With Bitcoin trading below $59,000 per token, Strategy just announced a major revamp to its business model.

Building Up Reserves

Strategy rose to prominence in 2020 when former CEO Michael Saylor made a big pivot. The company’s data analytics business was struggling, so Saylor used remaining capital to invest in Bitcoin. The move paid off when Bitcoin took off. Strategy now owns roughly 3% of all outstanding Bitcoin in circulation and has sparked a wave of Bitcoin-treasury companies.

Until now, Strategy never sold Bitcoin. But that is likely to change under the new strategy. The new framework includes five components:

• A U.S. dollar reserve policy
• A revised preferred stock policy
• A digital credit securities repurchase program
• A common stock repurchase program
• A Bitcoin monetization program

Strategy's Board of Directors will now require the company to maintain reserves equal to at least one year of preferred stock dividend payments. The company also plans to repurchase up to $1 billion of its preferred stock and up to $1 billion of common stock. The board has authorized selling Bitcoin from its stockpile to generate up to $1.25 billion to fund these initiatives.

CEO Phong Le stated: “Strategy is evolving from one-way capital issuance to active capital management. We intend to move between issuing securities when capital is attractive and repurchasing securities when our instruments trade at levels that make buybacks accretive.”

No Need to Buy the Stock

Strategy currently has about $2.55 billion in U.S. dollar reserves. If it sells $1.25 billion of its Bitcoin, it would have $3.8 billion in reserves, covering over 2 years of projected preferred dividends and interest expense. While this adds a buffer, the article argues there is still no need to buy Strategy stock due to its extreme volatility and historical premium to net asset value. The author suggests buying Bitcoin directly if you believe in a rebound.