Bitcoin's price continued its slide on Thursday, even as the Nasdaq and gold rallied, while the U.S. dollar and Treasury yields fell. So what's ailing the cryptocurrency? The key factor is that ETF outflows haven't been countered by Strategy's (MSTR) on-again, off-again buying binge.
There have been seven weeks this year during which Strategy bought more than $1 billion worth of bitcoin, including three weeks with buys over $2 billion. That kind of support might have offset outflows from bitcoin ETFs, including the iShares Bitcoin Trust ETF (IBIT). Those outflows totaled $1.29 billion over the past three days, according to CoinGlass.
As Strategy did last week, the biggest bitcoin whale is continuing to sit on the sidelines this week. The risk is that Strategy's buying power may remain muted for a while. Meanwhile, Strategy is likely issuing more shares of MSTR common stock this week to make a roughly $90 million dividend payment due at the end of May.
Strategy Can't Stretch
Just two weeks ago, Strategy bought $2 billion worth of bitcoin. But its buying power abruptly faded.
Issuance of its Stretch preferred stock (STRC) is one of Strategy's two big guns for financing bitcoin purchases. The other is issuance of new MSTR shares. Strategy issues both types of shares through at-the-market offerings. When STRC trades at 100 or higher, Strategy revs up its bitcoin purchases. It did so in mid-May, powered by $1.95 billion worth of STRC issuance.
However, STRC fell back below par value on May 15. So Strategy stopped issuing more preferred shares and ended its buying binge. As of Thursday afternoon, STRC had fallen to 98.57, suggesting it could be a while before the preferred shares are able to fuel more purchases.
It's possible that STRC will get back to 100 in time for the June 15 record date for next month's payment of the 11.5% annual dividend. If that doesn't happen, it could be an ominous sign.
No MSTR Big Shot
Strategy could finance bitcoin purchases by issuing more MSTR stock, but that's unlikely at the moment. One reason is that Strategy prefers to buy when there's a tailwind. Otherwise there's a bigger risk that its purchases will do relatively little to boost the bitcoin price and the value of Strategy's holdings, so the extra MSTR issuance could drive its own stock price lower.
However, the primary reason that MSTR is sidelined this week has to do with Strategy's focus on increasing its bitcoin-per-share ratio. Based on the current bitcoin price of around $73,500, purchasing more bitcoin through MSTR share sales would slightly reduce the bitcoin per share ratio. Strategy's stock price would have to rise about 7% from here, with the bitcoin price staying neutral, for MSTR-financed purchases to be neutral for the ratio. If MSTR rises more than 7%, purchases would increase bitcoin per share.
Strategy founder Michael Saylor believes that increasing bitcoin per share will allow MSTR to rise faster than bitcoin itself. However, staying true to that metric is probably a negative for the bitcoin price at the moment. And the price is weighing on Strategy's own stock price.
MSTR, Bitcoin
MSTR fell 1.7% to 151.64 on Thursday, bringing its loss to 5.2% on the week. Strategy shares edged up 0.2% early Friday. The iShares Bitcoin Trust ETF fell 2.1% to 41.56, the lowest level since April 16. Through Thursday, IBIT is down 3.3% on the week as the bitcoin price has pulled back.
Meanwhile, the SPDR Gold Shares ETF (GLD), which tracks the gold price, rose 1.05% on Thursday, cutting its week-to-date loss to 0.25%. GLD is continuing to outperform IBIT early Friday, rising 0.7% to the bitcoin price ETF's 0.1% gain.
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