Key facts
- Analysts from Benchmark and TD Cowen have defended MicroStrategy's (MSTR) Bitcoin strategy against 'death spiral' fears.
- MicroStrategy recently sold 32 BTC for $2.5 million to fund preferred stock dividend distributions.
- The company's cash reserves and the perpetual nature of its preferred stock are seen as buffers against forced liquidation.
- MicroStrategy purchased an additional 1,587 BTC for $100 million, bringing its total holdings to 846,842 BTC.
- The company recently moved to pay preferred stock dividends twice-monthly.
Wall Street analysts are rebutting fears that MicroStrategy (MSTR) could face a "death spiral" of forced Bitcoin liquidations, a narrative that has gained traction as the cryptocurrency's price has fluctuated. Analysts from Benchmark and TD Cowen have defended the company's strategy of holding Bitcoin on its balance sheet, both maintaining "buy" recommendations for the stock.
Benchmark analyst Mark Palmer argued in a research note that the "death spiral" narrative overlooks several critical steps before any significant Bitcoin sale by MicroStrategy would occur. He highlighted the company's $1 billion cash reserve, which is in place to fund dividend payments, as a primary buffer. Palmer also pointed out that MicroStrategy's perpetual preferred stocks, known as STRC, do not have a hard maturity date that could trigger accelerated selling. He stated that the company would need to experience a prolonged series of failures before its Bitcoin reserve, currently valued at nearly $55 billion, would be at risk.
MicroStrategy recently sold 32 BTC for approximately $2.5 million between May 26 and May 31. This marked the first time the firm had sold any of its Bitcoin holdings since it began acquiring the cryptocurrency in December 2022. The company stated that this modest sale, at an average price of $77,135 per coin, was to fund distributions on its STRC stock. The STRC shares are designed to trade near $100 and offer a variable dividend, currently around 11.5% annualized. Palmer characterized STRC as part of a "deliberate and durable" model that converts demand for yield into long-term Bitcoin exposure.
Despite these reassurances, some critics have labeled the preferred shares a "Ponzi scheme" that could lead to a death spiral. However, TD Cowen analysts Lance Vitanza and Jonnathan Navarrete suggested that MicroStrategy's reserves should make the burden of paying STRC dividends manageable, though they acknowledged that Bitcoin's price needs to appreciate, at least modestly, for the company's plans to succeed. TD Cowen also noted that STRC has "materially dampened volatility" during drawdowns, offering positive or near-flat returns even when Bitcoin experienced significant declines, positioning it as a capital preservation and income vehicle in contrast to Bitcoin's high-volatility growth profile.
In parallel with the analysis, MicroStrategy announced on Monday that it had purchased an additional 1,587 BTC for approximately $100 million, at an average price of $63,024 per bitcoin. This acquisition brings the company's total Bitcoin holdings to 846,842 BTC. The company also recently moved to pay STRC dividends twice-monthly, a decision intended to "stabilize price, dampen cyclicality, drive liquidity, and grow demand," according to MicroStrategy President and CEO Phong Le.