Michael Saylor's Strategy Is Selling Bitcoin Again. Here's Why I'm Still Bullish on Bitcoin.
Key Points
Starting in May, Strategy has recorded at least five different sales of Bitcoin, including another $100 million sale in August.
On a relative basis, the amount of Bitcoin being sold is very small compared to Strategy's vast BTC holdings.
Strategy still intends to be a net buyer of Bitcoin going forward.
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Right now, Michael Saylor's Strategy (NASDAQ: MSTR) holds 840,447 BTC, or roughly 4% of all Bitcoin (CRYPTO: BTC) in circulation. That makes Strategy (the company formerly known as MicroStrategy) the largest corporate holder of Bitcoin in the world.
That's why investors are justifiably concerned about the company's recent Bitcoin sales. Strategy just sold another 1,690 BTC, worth over $100 million. Several times this summer, the company has sold Bitcoin. What's going on here, and what does it mean for Bitcoin going forward?
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A worst-case scenario
This may be oversimplifying things, but when the biggest Bitcoin cheerleader on the planet starts dumping Bitcoin, you know there's a problem. It all started on May 26, when Strategy sold 32 BTC to "inoculate the market." The idea was to get the market used to the idea that the company might be selling Bitcoin in the future, and it didn't want investors to panic.
Image source: Getty Images.
That one sale in May was followed up by even bigger sales in June, July, and August. Is it enough to say that this is a disturbing new pattern? I think so, and that's what has me concerned.
Keep in mind: Strategy is not selling its Bitcoin because it wants to, but because it has to. In order to meet its cash obligations, it needs to sell Bitcoin. These proceeds are then used to help prop up the value of its common and preferred stock.
No need to worry for Bitcoin investors?
For now, Strategy says it has everything under control. Its dollar cash reserves are rising, and the company says it has more than enough to handle all future cash obligations, such as payments on its preferred stock dividend. Recently, Strategy released a brand-new capital management plan. As a result, Strategy says it is more than ready to endure more pain, even if Bitcoin falls further.
Moreover, the amount being sold by Strategy might sound like a lot, but on a relative basis, it's actually very little. Selling $100 million in Bitcoin is really equivalent to Strategy selling 0.2% of its overall Bitcoin position, and it's not like the company is abandoning its Bitcoin strategy entirely. Over time, it still expects to be a net buyer of Bitcoin.
Thus, as investment firm Bernstein recently pointed out, the fears over a potential implosion of the Bitcoin treasury company model are likely overblown. For its part, Bernstein is still putting out a price target of $150,000 for Bitcoin. That's right -- Bernstein still thinks Bitcoin might rally as much as 135% between now and the end of the year.
That's encouraging, but just keep in mind: The price of Bitcoin is now down nearly 15% since Strategy started selling in May. If you're thinking about loading up on Bitcoin now, be careful of the risks involved. Bitcoin may have yet further to fall before it eventually recovers. Buy Bitcoin for its long-term potential, not because you're expecting it to soar in price before the end of the year.
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Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
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