Key facts
- JPMorgan stated MicroStrategy's new Bitcoin sales policy introduces "two-way" risk to crypto markets.
- MicroStrategy has formalized a policy allowing selective Bitcoin sales to fund preferred stock dividends.
- The company currently holds 847,363 BTC on its balance sheet.
- JPMorgan recommends MicroStrategy increase its cash reserves to cover 24-36 months of dividend obligations, up from its current 17-month buffer.
- Bitcoin experienced pressure in late May and early June following MicroStrategy's disclosure of selling 32 BTC for dividend payments.
JPMorgan analysts have expressed concern over MicroStrategy's recent decision to implement a policy allowing for the selective sale of its Bitcoin holdings to fund preferred stock dividends. The bank views this move as introducing an avoidable "two-way" risk into the cryptocurrency markets, potentially increasing volatility and uncertainty.
MicroStrategy, one of the largest corporate holders of Bitcoin with 847,363 BTC on its balance sheet, has become a significant source of demand for the cryptocurrency. The introduction of a potential selling pressure, even if occasional, could impact market liquidity and investor sentiment. The bank's analysts believe that MicroStrategy should maintain a higher cash reserve, covering 24 to 36 months of dividend obligations, rather than its current buffer of approximately 17 months. This would provide greater investor comfort that the company would not need to sell its Bitcoin holdings in the foreseeable future.
The report highlighted that Bitcoin experienced downward pressure in late May and early June after MicroStrategy disclosed selling 32 BTC to cover dividend payments. This sale compounded existing market pressure from shifting Federal Reserve interest-rate expectations. JPMorgan noted that MicroStrategy's aggressive Bitcoin accumulation strategy has made it a major buyer, accounting for an estimated 70% of total digital asset inflows year-to-date.
The bank warned that the prospect of MicroStrategy simultaneously buying and selling Bitcoin creates unnecessary "two-way" flow risk, which could ultimately harm the company by increasing the cost of raising capital for future purchases. JPMorgan suggested that a stronger second half for the crypto market might depend on MicroStrategy expanding its cash reserves and the U.S. Congress approving pending market structure legislation.